ASML Q4 2024 Earnings: Can the European Chip Giant Bounce Back?

TradingKey - Semiconductors are powering everything right now. That includes the large language models (LLMs) that generative Artificial Intelligence (AI) is producing, as well as chips that are going into increasingly smart devices, from phones to electric vehicles (EVs).

So it stands to reason that the companies that produce the chips, or produce the equipment necessary for them, should benefit. While that has been the case for some, for the world’s largest manufacturer of advanced chip production machines – Dutch firm ASML NV (NASDAQ: ASML) – it hasn’t necessarily been the case.

Indeed, following on from its Q3 2024 earnings, the stock tanked by close to 20% in the space of two days. Since then, the stock has recovered somewhat and is up 10%. However, another big test awaits as ASML reports its Q4 2024 earnings next Wednesday (29 January). Here’s what chip investors should be watching. 

Bookings rebound?

The headline story of the Q3 2024 period was that ASML had a big miss on its bookings, recording just €2.6 billion in bookings for the quarter versus average analysts’ expectation for €5.39 billion in bookings.

That figure was over 50% lower than the bookings number recorded for Q2 2024 and means investors will be watching closely to see if another nasty surprise on the bookings front is in store.

Meanwhile, heading into the Q4 2024 earnings release, ASML had guided back in October that it expects Q4 2024 to be between €8.8 billion and €9.2 billion, implying 25% year-on-year revenue growth – from Q4 2023 – at the mid-point of the guided range.

Management had also said that it expects its Q4 2024 gross margin to be between 49% and 50%, which would be down slightly from the 50.8% gross margin it had notched for Q3 2024.

Questions on China but TSMC results bode well

As always, there’ll be a focus from investors on how ASML’s sales to China fare over the quarter. With the country making up nearly 50% of sales in the prior two quarters, investors will be hoping this share comes down slightly.

Indeed, ASML CFO Roger Dassan said on the last earnings call that China sales should account for roughly 20% of overall sales in 2025. That percentage is a more “normal” level for ASML’s business, according to him.

Last week, ASML shares actually got a boost from a strong set of earnings from its largest customer – 

Taiwan Semiconductor Manufacturing Co Ltd (NYSE: TSM), also known as TSMC. The world’s largest chip manufacturer posted a strong set of numbers and gave guidance that was upbeat for 2025.

Given ASML’s extreme ultraviolet (EUV) lithography machines – required to produce the cutting-edge 3 nanometre (nm) and 5nm chips required for AI – are critical for TSMC, that was a positive leading indicator for ASML’s own earnings. As a result of TSMC’s earnings beat, ASML’s share price actually ended the trading day up 3.3%.

Next-gen chip machinery in focus for ASML

It’s also natural to expect investors to hone in on the guidance ASML management gives for the whole of 2025 in terms of both bookings and gross margin. Looking further out, ASML also maintains its lead on the bleeding edge of chip innovation.

The company was supposed to receive more orders from the potential ramping up of more advanced chip production from Intel Corp (NASDAQ: INTC) but the American semis giant has been floundering and that has resulted in less demand than first expected.

However, the next generation of machines that will be capable of producing even smaller chips (2nm) will require even more advanced EUV machinery. While ASML’s top models right now cost US$220 million each, estimates for the next-gen EUV machines are in the region of US$380 million to US$400 million apiece.

Buying opportunity for ASML?

Overall, investors will be focused on the short-term prospects, though, and that includes ASML’s net sales, bookings, 2025 outlook, and potentially any risk from the China portion of its business. On the dividend side, investors can expect another dividend hike although ASML shares only currently yield around 0.9%.

Given the company has been suffering from a lack of demand outside of its cutting-edge machines, there is commentary out there that the weak market for chips – in areas such as PCs – is starting to bottom. That could potentially mean a turnaround in fortunes for a company like ASML, which still produces the machinery necessary for less advanced chip production too.

In the past year, ASML’s Nasdaq-listed American Depository Receipts (ADRs) are down 1.4%, trailing the S&P 500 Index’s 23.6% advance over the same period.