Earnings Report Preview | ASML Q2 Expects Surge in Orders, AI Chip Demand Drives Global Expansion Wave

According to the financial news app Zhitong Finance, as global demand for artificial intelligence chips continues to grow, computer chip manufacturers are expanding their production capacity to meet this demand. As the largest equipment supplier to these manufacturers, ASML (ASML.US) may announce a significant increase in new orders in its second-quarter earnings report to be released before the market opens on Wednesday. The growth in order volume will reassure investors as it indicates a recovery in demand for the company's most advanced products, suggesting a renewed interest in the company's high-end products by the market. Based on data from the London Stock Exchange, the average forecast of 16 analysts shows that ASML's net profit for the second quarter is expected to be 1.41 billion euros, with revenue of 6.04 billion euros, a decrease from the net profit of 1.94 billion euros and revenue of 6.9 billion euros in the same period last year. As of the end of the first quarter, ASML's order backlog was 38 billion euros. In order to achieve its sales forecast for 2025 (30 billion to 40 billion euros), the company needs to secure new orders of 4 billion to 6 billion euros each quarter. Each ASML machine is valued at as high as 300 million US dollars, with a delivery period of 12 to 18 months, closely coordinating orders with customers such as Samsung, Intel, memory experts SK Hynix and Micron Technology. This is the first performance report for ASML under the new CEO Christophe Fouquet. He took over the largest technology company in Europe and is helping the company deal with current geopolitical disputes. In addition, one of the market's focal points is whether Chinese companies will continue to make large-scale purchases of equipment for producing older generation chips, such as electric vehicle chips. This issue has raised concerns among Western policymakers, who have already imposed restrictions on the purchase of more advanced technology. Analysts expect ASML to raise its performance expectations. Major cutting-edge chip manufacturers, including TSMC (TSM.US), which produces chips for NVIDIA (NVDA.US) and Apple (AAPL.US), may increase and accelerate their equipment purchases. TSMC will announce its earnings this Thursday. It is understood that ASML dominates the lithography system market, which is a complex tool that uses lasers to manufacture computer chip microcircuits. ASML is the only manufacturer in the world that uses extreme ultraviolet (EUV) wavelength in lithography systems, which TSMC relies on to manufacture the most complex smartphone chips and artificial intelligence chips. Analyst Kevin Wang from Mihuzo stated, "We expect ASML's second-quarter order value to be close to 5 billion euros, higher than the market's general expectations." This is mainly due to TSMC's strong orders for ASML's EUV product line. In terms of older generation chip manufacturing technology, ASML competes with Japanese companies such as Canon and Nikon. Chinese companies, including Shanghai Micro Electronics Equipment Co., Ltd. (SMEE), are trying to develop competitive lithography tools. However, due to US export restrictions, Chinese chip manufacturers are unable to obtain ASML's best equipment, leading them to increase their purchases of ASML's older equipment over the past year, with first-quarter purchases accounting for nearly half of the company's sales The rapid growth of the Chinese market means that companies outside of China may lose market share and face more competition. The European Commission has started investigating European chip industry companies to understand whether they believe that Chinese government subsidies are distorting the market. ASML believes that the world needs old chips, as evidenced by the chip shortage during the COVID-19 pandemic, and China is intervening in this supply area. It is worth noting that ASML has a market value of about 400 billion euros (437 billion US dollars) and describes 2024 as a "transition year," expecting the company's business to remain stable during this year and then achieve a strong rebound in 2025, thanks to the continued demand for its most advanced tools in the market. This year, ASML's stock price has already risen by 45%, trading at historical highs of over 1000 euros per share, about 40 times the estimated 12-month forward earnings, far exceeding the STOXX Europe 600 Technology Index