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ASML FIRES WARNING SHOT FOR TECH INVESTORS

 * ASML had a weak quarter, highlighted by weak orders that undercut the
   guidance. 
 * ASML reaffirmed guidance but expects a significant uptick in the back half
   that may not come. 
 * Cash flow is solid, and the balance sheet is healthy, so a buy-the-dip
   opportunity is emerging, but the dip isn't over, and lower prices are ahead. 

ASML (NASDAQ: ASML) struggled in Q1 and has a warning for semiconductor
investors. The warning is that new orders were less strong than hoped and
undercut the semiconductor industry's outlook. A sizeable portion of new orders
included the cutting-edge EUV technology, but not enough to support the inflated
outlook driven by AI. 

This means that chipmakers' results could be weaker than expected going forward
and worse; guidance may also be weak and lead the tech sector into a deep
depression. Shares of stocks like AMD (NASDAQ: AMD) and NVIDIA (NASDAQ: NVDA)
are down from their peaks but still up substantially for the year and from last
year’s lows, leaving them in a precarious position. Names like Intel (NASDAQ:
INTC), Taiwan Semiconductor (NYSE: TSM), and Samsung (OTCMKTS: SSNLF), which are
more closely tied to ASMLs business, are also set up to extend their recent
declines. 


ASML HAS WEAK QUARTER BUT REAFFIRMS GUIDANCE 

ASML had a weak quarter in Q1, with revenue falling 21% compared to last year
due to new and used equipment weakness. New equipment sales fell 42%, while used
equipment sales fell 64%. The guidance for Q2 is decent, with sequential growth
expected, but the net bookings offset the impact. Net bookings fell 60%
sequentially, suggesting caution among the chipmakers. 

The margin is decent and held steady compared to last year. The gross margin
fell 40 basis points but less than expected to drive better-than-expected
bottom-line results. The GAAP $3.31 outpaced the consensus by $0.40 but may not
be directly comparable due to FX translation. The results were solid enough to
sustain the dividend and dividend growth. The board announced the final payment
for 2023 which converts to $1.86 with the EUR/USD at $1.06. 

Guidance is also decent, but expects a significant pivot in the back half of the
year that may not come. Q2 revenue should accelerate to the range of $6.07 to
$6.6 billion, with significantly stronger results in the back half. The
full-year outlook was reaffirmed at flat compared to last year, with caution
that this is a transition year. The business expects to resume growth in 2025,
driven by next-gen and AI technologies supported by the CHIPs Act (in the US)
and demand globally. 

[content-module:CompanyOverview|NASDAQ:ASML]


ASML CAPITAL RETURNS WILL CONTINUE TO FLOW

ASML’s dividend yield is not large, and the payouts can be erratic due to the
distribution policy, but the payment is safe and reliable. The company pays less
than 35% of its earnings and maintains a fortress balance sheet. 

Balance sheet highlights from Q1 include a reduction in cash and assets offset
by lower debt and liabilities, resulting in increased shareholder equity.
Leverage is less than 0.35X equity, total liabilities are less than 2X equities
and cash is about 5X. The cash flow and balance sheet allow for share
repurchases, but there is a catch. Repurchases did not offset dilutive actions
over the past year, and the share count is rising. 

Analysts support this market but may cap upward momentum now that results and
guidance are in. The trend in 2024 is positive, including numerous price target
increases, upgrades, and initiated coverages, but may have overestimated the
timing of the foundry-market recovery. The consensus is up 33% compared to last
year and predicts a 5% upside from the pre-release action, about 10% with the
post-release decline, but it is unlikely to rise further. 


ASML STRUGGLES WITH RESISTANCE: A DEEPER DECLINE IS POSSIBLE

Shares of ASML fell 5% in premarket trading following the Q1 release. The move
confirms that resistance at the recent highs is strong and has the market set up
to reverse. Critical support is near previous highs at $885 and may be tested
soon. If support does not hold at this level, the market could fall to $800 or
lower. Such a move would create a value opportunity in this market and set up a
buying opportunity; the question is when the rebound in equipment sales will
gain traction. 




STOCKS MENTIONED IN THIS ARTICLE

CompanyCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus
Price TargetTaiwan Semiconductor Manufacturing
(TSM)$139.03-0.6%1.24%26.84Moderate Buy$147.00NVIDIA
(NVDA)$840.35-3.9%0.02%70.38Moderate Buy$940.30Intel
(INTC)$35.68-1.6%1.40%91.49Hold$42.69Advanced Micro Devices
(AMD)$154.02-5.8%N/A296.20Moderate Buy$185.15Samsung Electronics
(SSNLF)$40.60flatN/A15.15Moderate BuyN/AASML
(ASML)$907.61-7.1%0.71%42.19Moderate Buy$1,036.00

This article was written by Thomas Hughes and first appeared on MarketBeat.com.

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