Analyst Note| Abhinav Davuluri, CFA |
ASML reported first-quarter results ahead of our expectations and above the high end of management’s guidance, thanks to higher installed base business related to upgrades. With the ongoing chip shortage plaguing chipmakers, we suspect customers have been looking for ways to increase output from existing capacity via software and system upgrades. In recent months, major customers such as TSMC and Intel have raised their capital expenditure outlook to $30 billion and $20 billion, respectively. Consequently, ASML CEO Peter Wennink now expects combined logic and foundry revenue to be up 30% year over year in 2021 (up from 10%). Wennink further anticipates ASML’s memory revenue to be up 50% year over year in 2021 (up from 20%), primarily due to a recovery in DRAM spending. After revising our wafer fab equipment estimates for 2021 and taking into account the company's rosy outlook, we are raising our fair value estimate for wide-moat ASML to $600/EUR 498 per share from $500/EUR 415, as industry adoption of extreme ultraviolet technology is set to accelerate this year and beyond.