Stock in focus: ASML

The essential tech company you’ve never heard of

For financial advisers and professional investors only – not for distribution to retail investors.

February 17, 2025

The Walter Scott Global Equity Fund and the Macquarie Walter Scott Global Equity Active ETF (Managed Fund) (ASX:MQWS) are proudly brought to you by Macquarie Professional Series.

Late last year, Tom Miedema, Walter Scott Investment Manager visited ASML’s headquarters in Veldhoven, Netherlands, to hear directly from management about the company’s strategy and growth outlook. While third-quarter results had triggered a sector-wide sell-off, largely due to timing-related factors, in Walter Scott view, the long-term case for ASML remains strong. 

Why ASML matters

ASML is the dominant player in lithography, the process of transferring patterns onto silicon wafers using light. Importantly, the company holds a monopoly position in the most advanced iteration of the technology, extreme ultra-violet (EUV). Capable of producing incredibly small and complex patterns, EUV allows manufacturers such as TSMC and Intel to compress more transistors on a single semiconductor. Without it, securing the massive computational power demanded by AI chips would be extremely challenging. ASML is one of the few companies that can legitimately claim to be indispensable to the AI revolution.

Reflecting its linchpin status in the global semiconductor supply chain, the company’s fortunes are often viewed as a barometer for the wider industry.

In late 2024, ASML reported a slight downgrade to its 2025 outlook and a drop in quarterly orders, triggering a 16% decline in its share price and broader semiconductor sector volatility. This news was interpreted by some investors as a worrying indicator for both ASML and for others in the semiconductor ecosystem. However, Walter Scott took a more measured view, seeing little to undermine the long-term investment case, outlined below. 

A question of time

1. Delayed Capex: Samsung and Intel, both major customers of ASML, have been deferring capex due to the ongoing struggles of their semiconductor businesses. Both are suffering from low production yields and a lack of customer interest in their efforts.

The result is a deferral of capex and a requirement for less leading-edge lithography equipment over the next few quarters. TSMC, ASML’s largest customer, is the obvious beneficiary of this and would ultimately replace demand should Samsung and Intel fail to sort out their challenges.

2. Weaker memory demand: Slower-than-expected recovery in DRAM and NAND memory has led key industry players such as Micron, Samsung, and Hynix to defer spending by a few quarters. However, with new fabrication plants under construction, demand for ASML’s technology remains. The only question concerns timing.

Back to normality: China’s contribution to ASML revenues

Source: Walter Scott Q2 2024

3. China normalisation: After an outsized contribution to sales in 2024, China’s share of overall sales should fall back to a long-term average of 20% in 2025.

These are timing issues, not structural declines, and do not diminish ASML’s critical role in enabling future semiconductor innovation. 

To 2030 and beyond

At its recent investor day, ASML’s new CEO, Christophe Fouquet, outlined an optimistic growth roadmap to 2030: 

• A growing market: ASML expects the global semiconductor market to be worth over US$1 trillion by 2030, growing at a compound annual growth rate (CAGR) of 9%. AI is the primary driver of this growth, with servers, storage and data centres projected to account for ~40% of total 2030 demand, a significant increase from prior estimates. Summing up this step-change, Mr. Fouquet quipped “we see our society going from chips everywhere to AI chips everywhere”.

Onwards and upwards: AI-related demand growth (US$b)

Source: ASML Investor Day, November 2024

• Mainstream markets slowing but still growing: Alongside this AI-driven growth, ASML revised down the 2030 growth forecasts for what it calls its ‘mainstream markets’ – PCs, smartphones and automotives. With the semiconductor industry only just starting to emerge from its worst cyclical downturn since the global financial crisis, demand from traditional markets has been sluggish. These markets will still grow, many at a healthy pace, but their overall contribution is likely to be lower going forward.

• Challenges bring opportunities: AI’s transformative potential is undeniable, with estimates suggesting it will add between US$6-$13 trillion dollars to global GDP by 2030. However, if AI is to deliver on this promise, Mr. Fouquet stressed that “major, major innovation” is required. Delivering the highest possible computing power and transistor density at the lowest possible cost and with the lowest possible CO₂ emissions presents a challenge for the semiconductor industry. ASML’s EUV technology is critical to addressing these challenges. As a consequence, demand for EUV is expected to comfortably outstrip the 9% growth rate of the wider chip market.

• Perpetual Innovation: Since the commercial release of the first EUV machine in 2018, ASML has consistently improved the technology, increasing its productivity from 140 wafers per hour in 2018 to over 220 today. That figure will increase again to 250 with the release of the NXD:4000F machine in 2027.

What does this mean for investors?

Walter Scott believe ASML presents an interesting opportunity for investors, its essential role in facilitating AI and broader technological advancements aligns well with the structural trends shaping the global economy.

The Walter Scott Global Equity Fund and the Macquarie Walter Scott Global Equity Active ETF (Managed Fund) (ASX:MQWS) provide exposure to this high-quality, long-term growth story. As global demand for AI and advanced computing accelerates, the team at Walter Scott believe ASML is poised to remain an indispensable player in this transformative space. 

The Walter Scott Global Equity Fund is designed for consumers who:

• are seeking capital growth and income distribution
• are intending to use the Fund as a core component, minor allocation or satellite allocation within a portfolio
• have a minimum investment timeframe of seven years
• have a high or very high risk/return profile for that portion of their investment portfolio, and
• require the ability to have access to capital within one week of request.

The Target Market Determination (TMD), available at  macquarie.com/mam/tmd, includes a description of the class of consumers for whom the Fund is likely to be consistent with their objectives, financial situation and needs.