ASML’s Earnings & How to Follow Earnings Season
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What is the main topic discussed in this episode?
Earnings season has started hot for the market, but will that continue? Motley Fool Money starts now.
Welcome to Motley Fool Money. I'm Travis Hoi. I'm joined by Lou Whiteman and Rachel Warren. We want to dive into one of the interesting earnings reports to start thing today. And then let's put some context to why the market's moving higher a little bit later and what the Fed said. But Lu, ASML reported earnings this morning as we're recording. The results were fine. The market was impressed. Shares were up a little bit early in trading. But they also said that sales in China are expected to be down significantly going forward. Saying that sales in 2026 are going to be higher than 2025 doesn't seem like the kind of company that should be trading for 10X sales and 35X earnings. What's going on behind the scenes here?
How should we look at an earnings report like ASML's?
First things first, ASML, for those who don't know, they make the machines that make the chips. These are highly specialized machines. I've seen some estimates that it would take a decade and billions of dollars for any competitor to catch ASML, even if ASML stood still. That is their advantage. The high-end AI chips have to come off of ASML machines. The problem with this, Travis, is these machines can run almost half a billion dollars a piece. They get transported in two Boeing 747s when they get delivered. These are massive things. This is a business where one order of one unit of your products can make or break a whole quarter. It's not a momentum business. It's not one where you can really just read through and say,
they have to be gangbusters if AI is gangbusters. Because honestly, the foundation that was laid years ago as their last generation was rolled off and was sold to these manufacturers, that's today's AI boom. Tomorrow down the line is future generations. It's just not a stock you can look at quarter-to-quarter as a momentum investor.
Rachel, what are you seeing from this one? Is the momentum, at least long-term, still kind of intact with this as an AI boom play?
I definitely think so. I mean, look, they're the sole manufacturer of that advanced EUV lithography equipment.
How did ASML’s latest earnings surprise the market and what did the results show?
So their results do offer, I think, pretty critical insights into the health and direction of the AI sector. And we are seeing a time where the AI arms race is accelerating among tech giants. Companies are really rapidly building out their advanced computing capacity. And that requires the most sophisticated semiconductors that only that EUV technology can create. I think another thing that we can take away from their results, I think we could look at the space and say the current investment cycle for AI infrastructure, it's a sustained trend. It's not a short-term phenomenon. You could think of one example, they're really expected to benefit from this recently announced NVIDIA and Intel deals that could lead to increased orders for their advanced semiconductor equipment.
And ASML's CEO, he noted that AI-driven investments are extending as well to a much broader range of customers, including those in advanced logic, advanced RAM. And that really shows that the AI rush is maturing beyond just a few hyperscalers. And I think it's becoming much more widespread throughout the chip-making industry. And finally, one other thing of note that kind of stuck out to me was they announced a new partnership with the French AI firm Mistral AI to embed AI into their own production processes. And that could really position them to benefit from the AI rush.
MARK MIRCHANDANI- So the AI equipment is going to be made by AI.
Yes.
Essentially. Can I say I'm skeptical about that? This is a company that has used technology. You're literally just etching on millimeters of sand. They have been using technology forever. I do believe that AI can improve it, but I just don't think you're going to see... Yeah, it's supposed to improve their production time and processes. Right. But this is a highly, highly complex machine. I don't think any of these open AI orders or anything does...
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Chapters
5 chapters
1
What is the main topic discussed in this episode?
0:05–2:36
2
How did ASML’s latest earnings surprise the market and what did the results show?
2:36–5:13
3
Why is ASML considered a near-monopoly for advanced chip-making equipment?
5:13–6:59
4
How do ASML’s massive machine orders and delivery dynamics affect quarterly results?
6:59–10:33
5
Is ASML still a long-term AI boom play despite slower near-term sales to China?
10:33–17:07