Though ASML Holding (NASDAQ:ASML) is already one of the largest companies in the semiconductor industry, its shares exploded 46% higher through the first half of 2021, according to data from S&P Global Market Intelligence. The Dutch tech giant is one of the pre-eminent suppliers of equipment needed to fabricate chips, focusing specifically on lithography machines that “print” circuitry patterns onto silicon wafers. With a chip shortage roiling the global supply chain of basic tech components and sending chip sales soaring, ASML stock was off to the races.
Many chip fabrication companies are in need of new equipment to manufacture more-advanced semiconductors, and ASML is a leader in developing new processes to make it all possible. Its customers include the world’s largest chip fabricators like Taiwan Semiconductor Manufacturing (NYSE:TSM) and Samsung, among many others. The aforementioned global supply shortage of chips — hastened by lots of new devices in need of circuitry like data centers, autos, smartphones, 5G mobile networks, and industrial equipment — is also putting strain on these fabricators.
ASML has been receiving lots of orders for new equipment as a result. During the first quarter of 2021 alone, the company reported it sold 73 new lithography systems. Resulting revenue shot up 79% year over year to $4.36 billion, and net income was up 240% to $1.33 billion.
There’s no telling how long the chip shortage will last, but demand for new computing systems is expected to continue rising for many years. ASML is an instrumental player in building the basic components used in these systems. It looks poised for further growth for the foreseeable future.
But as a supplier of manufacturing equipment, ASML’s business and finances are cyclical. Periods of booming sales are often followed by more-pedestrian results after customers invest in upgrades, and demand for the capital-intensive systems ASML develops eases up. Sooner or later, this will happen again once the chip fabrication industry catches up with the current supply glut.
When this happens, ASML stock could be due for a pullback. But for now, the coast looks clear for this leader in chip equipment. Shareholders should stay focused on the long-term potential here, though, as the digital world — built by semiconductors and advanced circuitry — rapidly expands.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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