AI's Unsung Hero: A Prime Buying Chance

Published Date: 30/07/2024

ASML, the company behind the technology that makes Nvidia's chips possible, has taken a dip. Is it time to buy?

Artificial intelligence (AI) has taken the investing world by storm, with many associated stocks experiencing significant growth. However, one crucial company has recently seen a decline, presenting investors with a potential buying opportunity. But which company is this, and why is it so vital to the AI ecosystem? 

It's not Nvidia, the popular AI chipmaker, but rather ASML, a company that supplies the technology that makes Nvidia's chips possible. ASML's products enable chip manufacturers to perform lithography at a microscopic scale, creating chips with electrical traces mere nanometers apart. 

As the sole provider of extreme ultraviolet (EUV) technology, ASML holds a technological monopoly, making it essential for the production of cutting-edge chips. Consequently, this Dutch company is the most important player in the AI value chain, as Nvidia's innovative GPUs wouldn't be possible without ASML's machines.

Despite its crucial role, ASML's second-quarter results showed a decrease in net sales, which has led some investors to become wary. However, this analysis neglects the company's strategic preparations for 2025, which management has repeatedly stated will be a much stronger year. Wall Street analyst projections support this sentiment, expecting only 2% revenue growth in 2024 but 33% in 2025.

With ASML's recent sell-off, some investors may have forgotten about its promising future, presenting a prime opportunity to take advantage of now. When using 2025 estimates, ASML's valuation becomes more reasonable, with a price-to-earnings ratio of 27 times 2025 earnings.

This is a rare opportunity to invest in a true monopoly, as ASML is the sole provider of vital technology for making cutting-edge chips. The demand for these chips will likely only increase, making ASML a smart investment. 

ASML (NASDAQ  ASML) is a Dutch company based in Veldhoven, Netherlands. Founded in 1984, ASML is a leading manufacturer of chipmaking equipment. Nvidia (NASDAQ  NVDA) is an American technology company based in Santa Clara, California, known for its graphics processing units (GPUs) and artificial intelligence (AI) technology.

FAQS:

Q: What is ASML's role in the AI ecosystem?

A: ASML supplies the technology that enables chip manufacturers to perform lithography at a microscopic scale, making it essential for the production of cutting-edge chips.

Q: Why did ASML's stock price decline?

A: ASML's second-quarter results showed a decrease in net sales, leading some investors to become wary.

Q: What is ASML's valuation based on 2025 estimates?

A: ASML's valuation becomes more reasonable, with a price-to-earnings ratio of 27 times 2025 earnings.

Q: Is ASML a monopoly?

A: Yes, ASML is the sole provider of extreme ultraviolet (EUV) technology, making it a true monopoly in the chipmaking industry.

Q: Should I invest in ASML?

A: With ASML's promising future and rare opportunity to invest in a true monopoly, it may be a smart investment.

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