ASML(NASDAQ: ASML) and Apple(NASDAQ: AAPL) are both often considered bellwethers of the tech sector. ASML is the world's largest producer of lithography systems, which are used to optically etch circuit patterns onto silicon wafers. Apple is the world's second-most-valuable company and top smartphone maker.
But over the past 12 months, ASML's stock rallied 50% as Apple's shares rose just 6%. Investors were impressed by ASML's dominance of the lithography market, which makes it possible for leading foundries like Taiwan Semiconductor Manufacturing to manufacture their most advanced chips. Yet they were less pleased with Apple's slowing iPhone sales and recent regulatory troubles.
Image source: Getty Images.
ASML's market cap of $390 billion is still a lot lower than Apple's valuation of $2.6 trillion. But could ASML follow Nvidia's lead and become a multitrillion-dollar chip company by the end of the decade? Let's see if ASML has more room to run -- and whether it can actually eclipse Apple over the next six years.
Why is ASML a bellwether of the semiconductor arena?
ASML, which is based in the Netherlands, is the leading producer of deep ultraviolet (DUV) lithography systems and the only producer of extreme ultraviolet (EUV) systems. DUV systems are used to manufacture older and larger chips, while EUV systems are required for the production of world's smallest, densest, and most power-efficient chips.
ASML perfected its EUV technology over the past three decades. That long development process, along with the fact that its EUV systems cost about $200 million each and require multiple planes to ship, shut its competitors out of the market.
The world's most advanced foundries -- including TSMC, Samsung, and Intel -- all currently use ASML's EUV systems to produce their highest-end chips for fabless chipmakers like Apple, Nvidia, and AMD.
ASML's current EUV systems can be used to manufacture chips as small as the 2-nanometer node, but its next generation of high-NA EUV systems will enable chipmakers to produce sub-2nm chips over the next few years. That generational leap should enable ASML to further strengthen its monopoly in the high-end lithography market.
How much larger could ASML grow by 2030?
ASML's dominance of that crucial technology enables it to generate steady growth and maintain high gross margins even as the broader semiconductor sector goes through cyclical booms and busts. Here's how it fared over the past six years.
Metric | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 |
|---|---|---|---|---|---|---|
Revenue growth | 22% | 8% | 18% | 33% | 14% | 30% |
Gross margin | 46% | 44.7% | 48.6% | 52.7% | 50.5% | 51.3% |
EPS growth | 27% | 1% | 38% | 69% | (2%) | 41% |
Data source: ASML.
However, the importance of ASML's lithography systems has also made it a top target for export curbs in the escalating tech war between the U.S. and China. ASML expects the latest restrictions on its system sales to China, along with the broader macro headwinds for the semiconductor sector, to cause its sales growth to nearly flatline in 2024. Analysts expect its revenue to rise just 1% for the year as its earnings dip 3%.
But looking further ahead, ASML sees its expansion accelerating significantly in 2025 as the macro environment improves, it laps the export curbs in China, and ramps up shipments of EUV and high-NA EUV systems. The ongoing process race between TSMC, Samsung, and Intel to manufacture the world's smallest chips should continue to drive that growth.
During ASML's last investor day presentation in November 2022, the company predicted it could generate 44 billion euros ($48 billion) to 60 billion euros ($65 billion) in revenue by 2030. Those estimates, which are based on expectations for the semiconductor industry, would represent a compound annual growth rate (CAGR) of 7% to 12% from 2023. If its valuation holds steady and it hits the top end of that range, ASML's stock price could roughly double by the end of the decade.
But it would still be a lot smaller than Apple
However, ASML's market cap would only reach about $780 billion if its stock price doubled. It wouldn't join the trillion-dollar club or come anywhere close to matching Apple's valuation.
Even if Apple's iPhone sales stay sluggish and antitrust regulators continue to challenge its walled garden policies, the tech giant's market cap probably won't slip back below the $1 trillion mark by 2030. Instead, the worst-case scenario for Apple might merely be becoming a slow-growth tech company that relies more heavily on big buybacks than innovative products to drive its earnings growth.
Even if ASML doesn't come anywhere close to matching Apple's market cap, it could remain the better overall investment. ASML is better diversified, serves an essential role in the booming semiconductor industry, and has much clearer plans for the future.
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Leo Sun has positions in ASML and Apple. The Motley Fool has positions in and recommends ASML, Advanced Micro Devices, Apple, 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.
