ASML’s earnings per share could roughly triple by 2025, according to New Street Research.
Paul O’Driscoll/Bloomberg News
After one of the world’s biggest chip manufacturers said it was going to plop down roughly $28 billion on capital spending over the next year, investors may want to look toward companies that might see a big chunk of that cash.
Last week, Taiwan Semiconductor Manufacturing (ticker: TSM) said it was going to spend most of that $25 billion to $28 billion on expanding its capacity to produce the most advanced chips, designed by the likes of Apple (AAPL) and Advanced Micro Devices (AMD). The rub is that there is only one businesses on the planet that sells the fabrication equipment Taiwan Semi uses to make those powerful chips.
That company is ASML Holding (ASML), the Dutch supplier of equipment that makes chips with a technology called extreme ultraviolet lithography and other manufacturing tools. New Street Research analyst Pierre Ferragu wrote in a Thursday note to clients that he was upgrading the company to a Buy rating.
He set a target for the stock price of €570 ($691.94), which implies an upside of roughly 25%. U.S.-traded ASML shares jumped 3.9% to $571.05 in Thursday trading.
“Everybody loves ASML, but ASML will continue to surprise on the upside,” Ferragu wrote.
Taiwan Semi may be just one customer, but its is a decidedly critical one. Its only competition in producing the most advanced chips comes from Samsung Electronics. Intel (INTC) could perfect the technique in the coming years.
Ferragu makes the case that ASML will benefit from two types of spending on chip-making tech: the fabrication systems, which he estimates will account for $150 billion of spending, and the technology used to produce the circular silicon wafers that chips are printed onto. Spending in that area will exceed $100 billion, he predicts.
The result of all the capital spending is that ASML’s per-share earnings could rise as high as €26 by 2025 on revenue of roughly €30 billion, Ferragu estimates. That per-share profit would be roughly triple the figure for 2020.
Earlier this week, Bernstein analyst Mark Li wrote in a client note that ASML’s recent earnings report suggests that Intel has already made the decision to outsource more production to Taiwan Semi. Intel has said it would give an update on its manufacturing plans when it reports earnings after the close Thursday.
Shares of ASML Holding advanced 92% in the past year, as the benchmark PHLX Semiconductor index climbed 62%.
Write to Max A. Cherney at [email protected]
