Why ASML Holdings fell 11.8% in July

Stocks of major semiconductor equipment suppliers ASML Holdings (ASML 4.00%) It fell 11.8% in July, according to data from S&P Global Market Intelligence.

ASML makes extreme ultraviolet lithography (EUV) machines that are essential for making cutting-edge semiconductors for artificial intelligence (AI) applications. So expectations were high heading into the month, and ASML was up about 40% year-to-date heading into July.

So when ASML reported solid but not spectacular results, investors were probably a little disappointed. Geopolitical concerns also surfaced around the same time as the July 17 earnings report.

China’s earnings report raises concerns

In Q2, ASML grew revenue by 10.6% to €6.9 billion, and earnings per share by 22.9% to €4.93 per share. Both figures were ahead of expectations. However, bookings were only €4.5 billion, below total revenue. This was actually up quarter-on-quarter, but may have been lower than expected given the recent surge in demand for AI.

Geopolitical concerns also loomed. On the same day that ASML reported its results, reports surfaced that the U.S. was considering tightening restrictions on exports of chipmaking equipment to China. ASML is already banned from selling advanced EUV equipment to China, but Huawei was able to produce advanced 7nm chips last year, presumably using less-efficient double patterning with ASML’s less-advanced deep ultraviolet lithography equipment.

So there has been a lot of concern that the government will further crack down on ASML’s sales in China. It’s worth noting that about 49% of ASML’s revenue came from China last quarter, but much of that is for late-stage specialty chips that are not likely to be affected. So far, no firm decision has been made on further restrictions.

Additionally, Republican presidential candidate and former President Trump expressed his concerns in an interview. Bloomberg Business WeekWith the statement suggesting that Taiwan’s support for potential Chinese aggression is not ironclad. Since most cutting-edge chips and much memory are produced in Taiwan, a potential war between China and Taiwan could be disastrous for the semiconductor industry and the global economy.

ASML could be a rebound candidate

Despite these concerns, ASML is an indispensable company with a monopoly on the technology that enables AI. While bookings can be quite bumpy, ASML has always seen 2024 as a digest year for the industry after customers add a lot of capacity through 2023. Meanwhile, ASML and many other chipmakers are very bullish on their 2025 outlook. So barring a geopolitical catastrophe, this decline in AI beneficiaries looks like an opportunity to buy more stocks.