ASML Overcomes a Cache of Headwinds as Lithography Demand Remains Robust; Shares Undervalued

ASML reported third-quarter results better than our expectations and management's guidance. The firm remains hamstrung by supply chain challenges, though these have been improving more recently. Thanks to higher EUV and services revenue, management now expects 2022 revenue to be up 13% (versus 10% previously). Concerning the latest U.S. export control restrictions to China, management does not expect a material impact to ASML's 2023 shipment plan, though it concedes there could be an indirect impact due to the inability of peers to ship their tools. Specifically, about 5% of ASML's backlog of EUR 38 billion could be at risk, which is consistent with our thoughts on ASML's risk. Should ASML be unable to ship to certain Chinese customers, we expect demand from other customers to make up for any lost sales.