Analyst Note| Abhinav Davuluri, CFA |
ASML reported a strong sequential increase in second-quarter results, as the firm was able to navigate a challenging environment due to the coronavirus pandemic. Although management did not provide guidance during last quarter’s earnings call, it did note that revenue could be up 50% sequentially in the second quarter. Ultimately, revenue rose 36% sequentially as supply issues in the first half of the quarter were mitigated in the second half, though two extreme ultraviolet, or EUV, systems were shipped without revenue recognized (this will occur in the third quarter). Based on management’s upbeat guidance and solid near-term outlook, we are raising our fair value estimate to $276 per share from $245 (and EUR 249 per share from EUR 221). Major logic and foundry customers such as TSMC, Intel, and Samsung are poised to deploy EUV lithography in high-volume manufacturing in 2021 (with some early implementation in 2020), and we are confident in wide-moat ASML to overcome any macroeconomic headwinds. Nonetheless, shares look overvalued after increasing over 90% from mid-March lows.