ASML Q3 2024 Earnings Preview: Chips, Orders and Capex

TradingKey - When it comes to the production of semiconductors, ASML Holding NV (NASDAQ: ASML) is one of the world’s most important companies – alongside Taiwan Semiconductor Manufacturing Co (TSMC). 

That’s because ASML is the only company in the world that produces the extreme ultraviolet (EUV) lithography machines that allow the likes of TSMC to actually produce cutting-edge chips, such as Nvidia’s AI chip Blackwell.

ASML is also the first large semiconductor firm to report results when a fresh earnings season cycle kicks off at the beginning of every quarter. The company is set to report if Q3 2024 earnings before the market opens on Wednesday (16 October). Here’s what investors should be watching before the Dutch firm releases its numbers. 

How will Intel’s woes impact ASML?

It’s well known that Intel Corp (NASDAQ: INTC), one of the world’s largest chip foundries, is facing a mountain of issues. Intel is one of ASML’s largest clients and in September, the chipmaker announced plans to postpone the construction of a key chip fabs in both Germany and Poland. This followed some worse-than-expected results from Intel.

How this plays into the impact on net bookings is something investors will be watching as this is a key barometer of the demand for ASML’s wares. For context, ASML’s Q2 2024 saw net bookings of €5.6 billion (US$6.1 billion), which was up 24% year-on-year. 

ASML’s Q2 2024 net bookings was also up sequentially (from Q1 2024) and suggests that a similar upwards number could be on the cards for Q3 2024. That’s because the company has previously said 2024 was a “transition” year, where it expects a recovery to unfold, given the tough 2023 the semiconductor industry endured.

In terms of revenue, ASML has guided for Q3 2024 revenue to be between €6.7 billion and €7.3 billion meaning a mid-point revenue target of €7 billion for the latest quarter. 

Capex to increase on back of AI

We are all now aware how much capital expenditure (capex) is required to achieve the successes of the AI revolution. That’s mainly down to the massive scale of computing power necessary to crunch the data.

As a result, ASML’s clients are likely to see significant increases in their capex budgets in the years ahead. That’s already true of a company like TSMC, which forecasts a capex budget of between US$32 to US$36 billion in 2025, up from the US$30-US$32 billion in capex it’s budgeting for 2024.

That trend of increasing capex is also on show from the tech giants like Amazon, Meta Platforms, Microsoft, and Alphabet Holdings. For example, Microsoft’s capex for its fiscal year ending June 2024 came to US$55.7 billion, up a whopping 75%. A lot of that will have gone to developing computer power for generative AI.

On the back this capex spending craze by the tech giants, companies like ASML – and by extension TSMC – will benefit as their services will be in demand.

Watch China as questions still persist

Finally, investors in ASML will be watching how much the restrictions on China is impacting ASML’s business given the Netherlands has imposed further curbs on ASML being able to export its latest cutting-edge machinery to China.

While China is still able to make orders on older equipment from ASML, the curbs will certainly impact its order book further down the line.

Ensuring the company can allocate its latest EUV lithography machinery to other clients will be crucial if it’s to ride the AI wave. ASML will likely be guiding for a sequential revenue jump in Q4 2024 so all eyes will be on guidance for the firm.

ASML’s US-listed shares are up 17.3% so far in 2024 but they are down over 23% since hitting a 52-week high in early July of this year.