ASML’s Weak Bookings Don’t Obscure Its Long-Term Potential; Raising Fair Value to EUR 790

ASML's weak new bookings of EUR 3.6 billion this quarter have left investors wondering where the firm's 2025 sales, estimated between EUR 30 and 40 billion by management, will ultimately land. The uncertainty on new bookings sent shares down 5% in early morning trading. The prior quarter had been exceptional, with ASML booking all-time-high orders of EUR 9.2 billion, setting a high benchmark. In our view, investors were overly optimistic last quarter and more pessimistic this quarter. ASML's new orders are normally lumpy given the low volume and high price tag of extreme and deep ultraviolet lithography machines, or EUV and DUV. What's clear to us is that ASML's long-term story remains unchanged, supported, for instance, by new plans from customers TSMC and Samsung, which aim to invest more than $20 billion each in additional fabs in the US, among other projects. Aside from equipment shipments, management expects other tailwinds to kick in in 2025. These include the introduction of the NXE:3800 EUV machine, which comes at higher average selling prices and gross margins; more improvement in EUV service margins; and better operational leverage from higher volumes of high-NA EUV machines. We raise our fair value estimate by 13% to EUR 790, supported by improved revenue and margin forecasts long term. Our fair value estimate represents a 42 and 32 times forward 2024 and 2025 P/E ratio, respectively.