ASML Holding: Heathy Orders Calm Investor Concerns and Attention Shifts to China: Valuation Intact

Although investor concerns regarding ASML’s order intake have been soothed after a healthy EUR 5.6 billion in bookings this quarter, attention has shifted to a new matter. Bloomberg reported that the US is considering newer, more severe trade restrictions regarding semiconductors, which sent ASML shares down 6% in June 17 trading. Other semiconductor stocks also declined on the news. The US may be looking to implement a measure known as the foreign direct product rule, or FDPR, which would impose controls on products using any kind of American technology, even if minor. Although we don’t discard incremental trade restrictions for ASML, a heavy crackdown is not our base case, and we are maintaining our EUR 900 fair value estimate. Even if more ASML systems are targeted, we expect China will continue ordering nonrestricted DUV machines at high levels and exploit any loopholes in the supply chain. If the US wants to effectively curb China’s advancements, it would also need to focus on other technologies beyond lithography such as advanced packaging, deposition or etching equipment, among others.