1. ASML Holding (NASDAQ:ASML)
Average Upside Potential: 40.90%
Market Cap as of September 26: $320.99 billion
Number of Hedge Fund Holders: 81
ASML Holding (NASDAQ:ASML) is a Dutch multinational corporation that specializes in the development and manufacturing of photolithography systems, which are essential tools used in the semiconductor manufacturing process to create tiny patterns on silicon wafers. These patterns form the basis of integrated circuits (ICs). It’s known for its advanced lithography technology, high-quality products, and dominant market position.
The company holds a unique position as the sole supplier of EUV and high NA EUV lithography machines, essential for producing advanced 5nm, 3nm, and 2nm chips. This technological monopoly gives it a significant competitive advantage.
While it has consistently achieved strong revenue growth over the past decade, with an average annual increase of 18.42%, the company faces headwinds in 2024. Cautious customer spending, supply chain disruptions, and economic uncertainties are expected to limit revenue growth to just 0.4% and may lead to a slight decline in net income. Following this pattern, the revenue in the second quarter of 2024 dropped 11.69% year-over-year. The revenue generated was mainly attributed to the Logic and Memory and improvements in inventory levels.
Recently, the company’s stock price experienced some decline amid concerns over potential US restrictions on chip equipment exports to China. Yet its stock has experienced remarkable growth, surging 190% in the past 5 years and a staggering 755% in the past decade. Dutch Prime Minister Rutte also recently indicated that the government would consider ASML Holding’s (NASDAQ:ASML) economic interests when deciding on stricter export controls to China.
Its innovative lithography systems are crucial for the production of advanced microchips, powering the growth of AI and other cutting-edge technologies. With its recent breakthrough in EUV technology and strong demand across various industries, it is well-positioned for continued success in the semiconductor market.
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.”
While we acknowledge the growth potential of ASML Holding (NASDAQ:ASML), our conviction lies in the belief that AI stocks hold great promise for delivering high 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: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. Insider Monkey focuses on uncovering the best investment ideas of hedge funds and insiders. Please subscribe to our free daily e-newsletter to get the latest investment ideas from hedge funds’ investor letters by entering your email address below.
