We recently published a list of Despite sell-off, analysts recommend these 10 AI semiconductor stocks. With ASML Holding NV (NASDAQ:ASML) ranking 8th on the list, the company deserves a closer look.
Despite concerns about AI stocks’ valuation, some analysts believe the companies are just getting started in the AI revolution and have plenty of time left for this bull run. Last month, analysts at Cantor Fitzgerald wrote in a note that AI semiconductor companies are well positioned for the second-quarter earnings season. They also said strengths in the NAND and HDD markets and fiscal discipline make data storage companies attractive.
“We continue to believe that AI-powered stocks remain the most attractive, even given earnings growth,” said Cantor analysts led by CJ Muse.
Cantor analysts said companies that make semiconductor equipment are still in the early recovery cycle.
“We are now in the fifth quarter of the recovery compared to the average cycle of nine quarters and believe this cycle will last even longer,” they said.
Deutsche Bank also expects AI-based semiconductor stocks to perform strongly in the second-quarter earnings season. However, the company observes that investors are becoming more selective. Analyst Ross Seymore stressed that while optimism remains about the current AI frontrunners, there is also growing caution about which companies will maintain their financial gains or even record initial successes, given the ongoing uncertainty about the durability of the momentum.
Melissa Weathers, another Deutsche Bank analyst, noted that semiconductor stocks have risen 10 to 20 percent or more since the start of the second quarter, with price-to-earnings ratios reaching or exceeding previous highs. She stressed that future upside will likely depend on earnings estimate revisions.
For this article, we selected 10 AI semiconductor stocks that are favorably rated by Deutsche Bank and Cantor Fitzgerlad. For each stock, we indicated the number of hedge fund investors. Why do we care about the stocks that hedge funds invest in? The reason is simple: Our research has shown that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (Further details can be found here).
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ASML Holding NV (NASDAQ:ASML)
Number of hedge fund investors: 75
ASML is also one of Cantor’s top semiconductor picks.
In the second quarter, the company’s revenue grew by about 18% compared to the previous quarter. The company plans to expand its production capacity by over 50% by 2025/2026, improving its ability to monetize both its existing installed base and new shipments. The company has a backlog of €39 billion and continues to grow. With forecast revenue and earnings growth rates of 13.3% and 20.3% CAGR through FY 2026, compared to the original estimates of 11% and 18.4%, the stock seems poised to capitalize going forward.
ASML Holding NV (NASDAQ:ASML) has a near-monopoly position in the semiconductor industry as its machines are used by chip manufacturers to produce physical chips. The company’s focus on maintaining its leadership position in lithography is reflected in increased R&D spending of €4.16 billion (+13.3% sequentially, +112.2% from FY2019) and a rising R&D to revenue ratio of 16.3%.
ASML Holding NV (NASDAQ:ASML) supplies ultraviolet lithography photolithography machines used to manufacture advanced 3nm and 5nm chips. Jim Kelleher of Argus has set a $1,000 price target on the stock.
ASML was one of the stocks presented during the SOHN conference this yearVijay Shilpiekandula of Dilation Capital, who was named the winner of the Sohn Idea Contest, presented ASML as his best stock idea.
“I think it’s a good opportunity for investors in the market to be creative now about the long-term capabilities and long-term earnings potential of this company based on this gold rush that all these memory manufacturers and big language models are chasing,” Shilpiekandula said.
Poland International Growth Strategy stated the following regarding ASML Holding NV (NASDAQ:ASML) in its Investor letter for the fourth quarter of 2023:
“Dutch ASML Holding NV (NASDAQ:ASML) and Japan-based Lasertec play dominant roles in different segments of the global semiconductor industry. In both cases, shares rebounded significantly in the fourth quarter of 2023, causing 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 used to produce the world’s smallest chips. However, in our view, 2024 could be a year of less exciting growth for the semiconductor industry, which prompted us to reduce these positions.”
Overall, ASML Holding NV (NASDAQ:ASML) ranks 8th on Insider Monkey’s list Despite sell-off, analysts recommend these 10 AI semiconductor stocks. While we recognize the potential of ASML Holding NV (NASDAQ:ASML), we believe AI stocks promise higher returns and do so in a shorter time frame. If you are looking for an AI stock that is more promising than ASML but trades at less than 5 times its earnings, read our report on the cheapest AI stock.
READ MORE: Analyst sees a new $25 billion “opportunity” for NVIDIA And Jim Cramer recommends these stocks.
Disclosure: None. This article was originally published on Insider Monkey.
