The US stock market, especially the tech sector, is still reeling from the new cost-to-performance efficiency standard established by the Chinese DeepSeek AI model. Over the week, Nvidia (NASDAQ:NVDA) is down around 15%.
It may be the case that this is the time to buy the Nvidia dip, for reasons explored here. It also appears that the latest earnings report for Dutch ASML Holding NV (NASDAQ: ASML), which supplies the world with critical semiconductor manufacturing equipment, is showing no signs of stagnation.
Although ASML’s earnings report covers Q4 2024 ending December 31st, so before the DeepSeek public spotlight, retail investors should be aware of the semiconductor demand momentum.
Why is ASML an Important Barometer for Semiconductor Demand?
In the semiconductor hierarchy, ASML is at the top. While Nvidia and AMD (NASDAQ:AMD) design chips, they delegate their manufacturing to Taiwan Semiconductor Manufacturing (NYSE:TSM). However, it is ASML that develops the machinery for chip foundries like TSMC, Samsung (KS:005930), and Intel (NASDAQ:INTC).
Specifically, the company has a monopoly on its extreme ultraviolet (UEV) lithography machines, first delivered to TSMC in 2014.
This eventually enabled TSMC to launch a line of 7nm chips in 2018, now commonplace across smartphones, tablets, and PCs. With the unveiling of High Numerical Aperture (High-NA) Extreme Ultraviolet (EUV) lithography machines in late 2023, a 2nm chip manufacturing is possible as the next cutting-edge frontier in computing cost-efficiency.
This is why ASML’s business is under tight scrutiny by the US government and subject to export controls. Of course, this is not difficult to accomplish given that the Netherlands is fully integrated into the American influence sphere, as well as being a member of 14 Eyes nations.
However, in early December 2024, ASML assured investors that new restrictions would not affect the company’s bottom line long term. The latest earnings report points in the direction of that assessment being correct.
ASML Reports Record Revenue, Beating Expectations
Against the expected LSEG consensus of €9.07 billion, ASML reported €9.26 net sales. Quarterly, this is up 24%. Likewise, the company surpassed the net income forecast of €2.64 billion, but marginally at €2.69 billion.
For full year 2024, this amounts to €28.26 billion total net sales (vs €27.56 in FY23) and €7.57 billion net income (vs €7.84B in FY23). When deducting ASML’s revenue from the cost of sales, as gross margin, it surpassed the company’s guidance at 51.7%.
More importantly, ASML’s net bookings is a highly indicative metric for semiconductor demand, as it counts new orders, adjusted for cancellations. From net bookings worth €2.63 billion in Q3, ASML got €7.08 billion worth of new orders, a demand uptick of 169%. This too exceeded expectation of €3.99 billion per Visible Alpha polling.
Expectedly, EUV machines make the bulk of net bookings at €3 billion, which is above the entire order lineup in the previous quarter. For Q1 guidance, the company now expects net sales in the €7.5B – €8B range, with an elevated gross margin within 52% – 53%.
“Consistent with our view from the last quarter, the growth in artificial intelligence is the key driver for growth in our industry. It has created a shift in the market dynamics that is not benefiting all of our customers equally, which creates both opportunities and risks as reflected in our 2025 revenue range,”
ASML President and Chief Executive Officer Christophe Fouquet.
For the full year 2025, the company maintains its October expectation of net sales up to €35 billion. The €30 billion revenue is the bottom expectation, which is significantly higher than the now reported €28.3 billion for FY24.
Should Investors Expect the DeepSeek Lag to Cut into ASML’s Forecast?
As explored yesterday, DeepSeek is a product of many key optimizations as Chinese firms suffer US-led chip restrictions. However, it bears keeping in mind that the purported training efficiency of DeepSeek, at over three times lower GPU count needed, is only a part of the demand equation.
Even when the US-based Big Tech adopts these training and reinforcement learning (RL) techniques, vast AI infrastructure will still be needed to deliver results to users promptly. In addition to avoiding server congestion, which DeepSeek already suffers from, further demand is expected if AI models prove to be more accurate and consistently so.
It is clear that there is much room for improvement of AI models, but once that reliability threshold is reached, the demand for AI services will likely outpace the gains from computing efficiency, both on hardware and coding side.
This is effectively the conclusion that ASML CEO Christophe Fouquet reached as well.
“A lower cost of AI could mean more applications. More applications means more demand over time. We see that as an opportunity for more chips demand,”
Therefore, it is very likely that the market reaction to DeepSeek will be perceived as an overreaction in a few months. In the meantime, Alibaba (NYSE:BABA), China’s Amazon (NASDAQ:AMZN) equivalent, appears to have an even better AI model than DeepSeek. However, this is another case of open-source being superior, which is why Alibaba’s announcement failed to impact US stocks.
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Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.