Are you looking to the stock market to become a millionaire? If so, excellent choice! Stocks are one of the most proven ways to build inflation-beating wealth. The key is discipline, patience, and of course, picking the right stocks in the first place.
With that as the backdrop, can technology stock ASML Holding N.V.(NASDAQ: ASML) turn $20,000 now into a seven-figure sum in a single lifetime? Here's what you need to know.
ASML Holding is the best of the best for a reason
You may already be benefiting from its tech without even realizing it.
Netherlands-based ASML helps chipmakers like Intel and Taiwan Semiconductor make semiconductors using nothing but light. Specifically, the company's technology is used to layer conductive circuitry onto silicon using extreme ultraviolet (or EUV) light shining through a patterned reticle. The process -- called lithography -- is superior to alternative approaches just because it facilitates the creation of tiny microchips. In fact, its most recent tech can lay a line on silicon that's only 3 nanometers wide. (For perspective, that's about 1,000 times thinner than a human hair; you can't see it without a powerful microscope.) These chips also require less power to function.
Here's the kicker: ASML's commanding lead of the world's lithography-equipment market is well protected by a war chest of patents.
This has proven a bit of a headache in a couple of different ways. First, it makes ASML the target of corporate espionage, ultimately threatening its patent-protected lead on its competitors. And second, given its importance to the world's high-tech manufacturing sector, the company occasionally finds itself caught in the middle of international, politically charged trade wars.
Don't sweat it too much though. Neither of these challenges is something the company hasn't faced or overcome before.
Bolstering this competitive strength is a never-ending string of new patents. For instance, this year alone ASML has already been awarded patents for a new "method for generating a mask pattern to be employed in a patterning process" as well as a new alignment method for lithographic apparatuses. These patent-protected leaps are enough to keep the company ahead of its competitors.
More important to interested investors, the need for high-performance chips is only going to grow going forward.
Catching a tailwind that may never die
No matter how you slice it, the future is bright for ASML.
Take lithography itself, for instance. Technology market research outfit Mordor Intelligence says the worldwide EUV lithography market is set to grow at an annualized pace of more than 11% through 2029, and that's less optimistic than other EUV lithography market outlooks.
Driving this need for new EUV lithography systems is growing demand for more technology-driven solutions and the subsequent overall need for more computer chips. While the chip market's already-enormous size is apt to limit its future growth to a single-digit pace for the next several years, the need for the high-performance semiconductors made by ASML's tech is stronger than the broad average suggests.
Further supporting this demand is the advent of artificial intelligence (AI), which typically requires the best-performing and most-efficient chips. In this vein, Mordor Intelligence expects the AI hardware market itself to grow at an annualized clip of 26% through 2029. Yes, Nvidia is the name behind most of the world's AI hardware right now. Just bear in mind that the aforementioned Taiwan Semiconductor makes most of Nvidia's chips, and ASML's top customer is Taiwan Semiconductor.
Connect the dots. The growth of AI is ultimately a growth-driver for ASML.
ASML stock is indeed a potential millionaire maker
Still, from $20,000 to $1 million? That's quite a feat!
Never say never, however.
Since its beginning, the S&P 500's average annual return has been right around 10%. Some of those years were great. Others were awful. For investors though, it's the long-haul average that matters.
Let's conservatively assume ASML stock is able to outperform this overall average with an average yearly gain of 12%. Let's also assume you'll reinvest the (very) modest dividend that ASML pays in more shares of the stock itself. How long would it take $20,000 worth of ASML shares now to turn into $1 million? About 33 years, give or take a few months.
ASML Revenue (Quarterly) data by YCharts.
That's a long time to be sure. The number also doesn't consider the impact of taxes incurred at the end of that time frame or in the meantime.
That's still not longer than the average career these days, however, and again, that assumption of annual gains of 12% is conservative. ASML shares have actually logged average-yearly gains of more than 20% since debuting back in the late '90s.
But you don't have anywhere close to 33 years? Or maybe you don't have $20,000 to commit to a stock pick right now?
That's OK. If you're going to own any stocks at all, you should own several rather than just one. And you should certainly build your portfolio's foundation on less-risky picks than ASML. After all, while this company is leading the EUV lithography market right now, we don't know what sort of chipmaking tech a rival company might come up with later.
Don't look past the bigger picture here though. ASML stock consistently outperforms the S&P 500 because it consistently offers the world's best chipmaking solutions. That's not likely to change anytime soon.
Should you invest $1,000 in ASML right now?
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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short May 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
