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Global chip supplier ASML could reach $500 billion in valuation as demand for semiconductors ramps up and company projects 11% annual growth.
According to some tech investors, world-renowned chip maker ASML Holding (NASDAQ: ASML) could become an empire with a $500 billion valuation by 2022. Currently being valued at $302 billion, the company is the largest supplier of photolithography systems used in the semiconductor industry. Furthermore, ASML is the only company worldwide to offer extreme ultraviolet lithography (EUV) machines needed to make the smallest, sophisticated chips. Each EUV machine costs $150 million, comprises more than 100,000 moving parts, and ships in 40 freight containers or four jumbo jets.
Nathan Benaich, founder and general partner of Air Street Capital, a boutique VC firm, first hinted at ASML’s projected ascension. In an annually-released report, Benaich and Ian Hogarth, founder Songkick, referred to ASML as the “linchpin” in the global semiconductor industry. Hogarth said:
“As people look for alpha when investing in this trend of semiconductors being more and more critical to global supply chains, this (ASML) feels like it’s an obvious candidate.”
Furthermore, Hogarth told CNBC that ASML’s price was still some way off at the moment, but with room for growth. This is despite the fact that many chip firms are enjoying soaring stock prices since the global chip shortage era from the pandemic.
Hogarth further suggested the chip maker’s market cap is not on par with Nvidia Corp (NASDAQ: NVDA) or TSMC Semiconductor Mfg. Co. Ltd (TPE: 2330) because it is in Europe, as the continent does not offer as much market or technology visibility. While Nvidia currently has a value of $521 billion, TSMC is higher, at $533 billion. Hogarth assumes that ASML’s growth will largely depend on the reduction in outsourcing global chip manufacturing by certain countries. Currently, Asia serves as the manufacturing zone for most of the world’s chips.
ASML Showcasing Blueprint to Aid in Attaining $500 Billion Valuation
ASML stated in September that it projects an annual revenue growth rate of around 11% between 2020 and 2030. In addition, the Dutch company stipulates that annual revenue will hit 28-35 billion dollars by 2025, with gross margins between 54%-56%. It is worth noting that this prediction significantly trumps ASML’s earlier forecast. This is so because current growth in the semiconductor markets is driving demand for its products and services. Furthermore, ASML expects this trend to continue as more “global megatrends in the electronic industry” are coming to bear. Within the last year, the company’s share price increased from 328 euros to 646 euros as of last Friday. It even peaked as high as 753 euros on September 23rd.
However, some investors and market watchers are still skeptical of ASML’s lofty projections. For instance, analysts at New Street Research, in a recent note to investors, say ASML has “limited” upside in 2022. It ascribes this to the supply constraints in EUV. Also, Swiss banking giant UBS has a neutral rating on ASML stock. In a September 29th note to investors, the leading bank acknowledged ASML’s growth potential mid-term, but not over 12 months.
“We struggle to see compelling upside to the shares on a 12-month view,” stated UBS.