Is ASML Holding NV (NASDAQ:ASML) the Best Undervalued AI Semiconductor Stock to Buy?
We recently published a list of Analysts are Recommending These 10 AI Semiconductor Stocks Despite Selloff. Since ASML Holding NV (NASDAQ:ASML) ranks 8th on the list, it deserves a deeper look.
Despite the concerns around AI stock valuations, some analysts believe companies are just getting started with the AI revolution and have a long runway for this bull run. Last month Cantor Fitzgerald analysts said in a note that AI semiconductor companies were positioned well heading into the second-quarter earnings season. They also said strengths in NAND and HDD markets and fiscal discipline make data storage companies attractive.
“We continue to believe that AI-leveraged names are still the most attractive to own heading into earnings,” Cantor analysts led by C.J. Muse said.
Cantor’s analysts said that companies that make semiconductor equipment are still in the early cycle of recovery.
“We are now five quarters into the recovery versus the average typical cycle of nine quarters and believe this cycle will be even more elongated,” they said.
Deutsche Bank also expects strong performance from AI-driven semiconductor stocks in the second-quarter earnings season. However, the firm observes that investors are becoming more selective. Analyst Ross Seymore highlighted that while optimism persists around the current AI leaders, there is growing caution about which companies will sustain or begin to show financial gains amid lingering uncertainty about the momentum’s longevity.
Melissa Weathers, another Deutsche Bank analyst, noted that semiconductor stocks have surged by 10-20% or more since the beginning of the second quarter, with price-to-earnings ratios approaching or exceeding previous highs. She emphasized that future upward movement will likely depend on revisions to earnings estimates.
For this article we picked 10 AI semiconductor stocks Deutsche Bank and Cantor Fitzgerlad are bullish on. With each stock we have mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Photo by Umberto on Unsplash
ASML Holding NV (NASDAQ:ASML)
Number of Hedge Fund Investors: 75
ASML is also among the top semiconductor picks of Cantor.
During the second quarter, the company’s revenue rose about 18% quarter over quarter. The company plans to expand production capacity by over 50% by 2025/2026, enhancing its ability to monetize both its existing installed base and new deliveries. The company has a backlog of €39 billion and counting. With projected top- and bottom-line growth rates of 13.3% and 20.3% CAGR through FY2026, compared to initial estimates of 11% and 18.4%, the stock looks positioned to benefit in the future.
ASML Holding NV (NASDAQ:ASML) has a near monopoly in the semiconductor industry as its machines are used by chip manufacturers to make physical chips. The company’s focus on maintaining leadership in lithography is evident from its increased R&D expenses of €4.16 billion (+13.3% sequentially, +112.2% from FY2019) and a rising R&D-to-revenue ratio of 16.3%.
ASML Holding NV (NASDAQ:ASML) supplies ultraviolet lithography photolithography machines used to manufacture advanced 3nm and 5nm chips. Jim Kelleher of Argus has set a $1,000 price target on the stock.
ASML was one of the stocks pitched during the SOHN Conference this year. Vijay Shilpiekandula of Dilation Capital, who was named the Sohn Idea Contest Winner, presented ASML as his best stock idea.
“What I find like good opportunity for investors in the market to think about right now is to be creative about the long-term capacities and the long-term earnings potential of this company based on this gold rush that all these memory makers and large language models are chasing,” Shilpiekandula said
Polen International Growth Strategy stated the following regarding ASML Holding N.V. (NASDAQ:ASML) in its fourth quarter 2023 investor letter:
“Netherlands-based ASML Holding N.V. (NASDAQ:ASML) and Japan-based Lasertec play dominant roles within different segments of the global semiconductor industry. In both cases, shares rallied significantly in the fourth quarter of 2023, prompting our positions to grow as a percentage of the overall portfolio. We believe both companies will see demand for their products as extreme ultraviolet (EUV) lithography and soon high-numerical aperture lithography must be utilized to manufacture the world’s smallest chips. However, in our estimation, 2024 could deliver a year of less exciting growth for the semiconductor industry, which prompted us to trim these positions back.”
Overall ASML Holding NV (NASDAQ:ASML) ranks 8th on Insider Monkey’s list Analysts are Recommending These 10 AI Semiconductor Stocks Despite Selloff. While we acknowledge the potential of ASML Holding NV (NASDAQ:ASML), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ASML but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These Stocks.
Disclosure: None. This article is originally published at Insider Monkey.
:quality(70)/cloudfront-us-east-1.images.arcpublishing.com/archetype/E43XN2JDZZAMXOSMQBU5SPU53E.jpg?w=428&resize=428,400 "Should the Pentagon have used Commerce Department funds for semiconductors?")