ASML Just Told Investors Something They Shouldn’t Ignore
The chip-equipment bellwether is sending an important signal for AI and the market. Just make sure you’re in the right spots.
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Early Wednesday morning, semiconductor equipment provider ASML Holding (ASML) released its third-quarter earnings. While total sales may have disappointed Wall Street ever so slightly, those sales were still good for year-over-year growth of 55%. That said, margins improved in an environment that simply reflects a profoundly overt era of scarcity.
You see, ASML builds the lithography machines that foundries such as Taiwan Semiconductor (TSM), Intel (INTC), and Samsung use to manufacture chips. ASML Is the only semiconductor equipment provider in the world that makes the extreme ultraviolet lithography systems that are required to build today’s most advanced chips for smartphones, AI accelerators, and GPUs.
This differentiates ASML from Lam Research (LRCX), Applied Materials (AMAT) and KLA Corp. (KLAC). It also makes ASML a very important and almost bellwether-type stock for shareholders of Nvidia (NVDA), Advanced Micro Devices (AMD), Apple (AAPL) and many other high-profile chip design/tech firms.
The most important takeaways from this morning’s release would be not just the Q3 profitability, which was beyond incredible, but the sales guidance going forward. ASML provided an expected range for Q4 revenue generation with a midpoint of €14.7 billion. Wall Street was looking for something closer to €14.1 billion. The low end of the range provided by the company stands at €14.2, so this guidance is huge.
ASML also lifted the lower end of the range for its own full-year sales guidance. In addition, the company told investors that AI-driven demand for its chip-making equipment is likely to exceed its ability to supply that market in both 2027 and 2028, prompting the Dutch semiconductor equipment maker to explore additional capacity expansion. The company is now considering increasing production capacity beyond the planned 30% expansion for 2027 and 2028, as some clients are already expressing interest in placing orders for fiscal years 2029 and 2030.
News like this, I see as supportive of my idea that there will be a late 2026 market rally as the uncertainty of the midterm elections is removed from the equation (regardless of which political party does better). I also see an increased probability going into year’s end for a sharp deceleration for energy-related consumer-level inflation and an increased probability that bond-predominant portfolio managers seek out (because they have to) support levels for the products that reflect their performance and get them paid.
On That Note…
Memory chip king Micron Technology (MU), a producer of DRAM, high-bandwidth memory, NAND, and other storage solutions, pushed lower by roughly 3.6% Tuesday and has given up 12.4% in a week’s time. This weakness comes despite the announcement of a record $35.16 billion share repurchase authorization, set to commence on December 9.
Am I concerned? Of course. I am, despite rumors to the contrary, very human. That said, I do not expect to be shaken out of what’s left of my long position in this stock. I am as skinny as I want to get in the name. Let’s not forget that just a week ago, analyst Gil Luria of DA Davidson upped his price target price for MU to $3,000 from $2,100. In October alone, Luria along with 16 other analysts, all rated at five stars out of five by TipRanks, all reiterated either “buy” or buy-equivalent ratings on the stock.
Does that make the boat top-heavy? Maybe. Maybe too much weight is on one side of the boat. I can be a contrarian, but not this time. Take Yik Ban Chong of Phillip Securities, for example. That dude has a $1,950 target on these shares. He also bears a success rate over two years of 81% and has generated an average return over that time of 46.3%. I can dig it.
Then, There’s This
Anyone else catch that “almost cautionary” note written by Citadel’s Scott Rubner on Tuesday? Rubner, by the way, is Citadel’s head of Equity and Equity Derivatives Strategy. According to Rubner, Micron Technology and Nvidia alone account for about 36% of expected S&P 500 earnings growth for the third quarter. I mean, I knew the boat was top-heavy, but gee whiz.
The Wall Street consensus entering the Q3 reporting season is for annual growth of about 27%, as those earnings expectations have continued to improve. Rubner writes that “Excluding those (top) ten (contributing) companies, expected earnings growth falls to ~11%.” He points out that the bottom 300 S&P 500 companies by market cap are expected to grow earnings by only about 5%. This, my friends, kind of reflects the economy that our 20-something and 30-something year-old kids are telling us about.
In short, the economy is booming. In spots. As investors, we have to be in the right spots. That said, the broader environment is not booming. There is opportunity. Traders may do well, if they are sharp. Investors will have to be smart and, depending on their areas of expertise, probably patient. Your kids? They’re not crazy.
CPI
It is September CPI Day. Keep an eye on the Fed’s Beige Book this afternoon.
Wondering…
If Bank of America (BAC) got themselves into a mess, if there are other banking “messes” out there.
Note to Readers
Thank you for all of the concern (and even the impatience) shown by (some) readers regarding my unexpected absence. It’s nice to be missed. I did go on a vacation as expected last week. I am, for the moment, caring for a loved one more than 2,000 miles from my home or office and have been spending my days at an area hospital.
I am trying to contribute from afar. I do see that the $10,000 Portfolio got roasted while I was focused elsewhere. That said, I am working in a hotel room off of a laptop, not in a professional office supported by two desktops. One screen versus five. No printer versus two.
Production won’t be normal until I can get myself back east. Also, writing Market Recon at 1 a.m. instead of 4 a.m. kind of stinks.
God bless. Talk soon, gang.
Economics (All Times Eastern)
07:00 – MBA 30 Year Mortgage Rate (Weekly): Last 7.49%.
07:00 – MBA Mortgage Applications (Weekly): Last -4.2% w/w.
08:30 – CPI (Sept): Expecting 0.6% m/m, Last 0.4% m/m.
08:30 – Core CPI (Sept): Expecting 0.2% m/m, Last 0.3% m/m.
08:30 – CPI (Sept): Expecting 3.6% y/y, Last 3.4% y/y.
08:30 – Core CPI (Sept): Expecting 2.5% y/y, Last 2.4% y/y.
16:30 – API Oil Inventories (Weekly): Last -2.09M.
The Fed (All Times Eastern)
13:30 – Speaker: Richmond Fed Pres. Tom Barkin.
14:00 – Beige Book.
22:55 – Speaker: Reserve Board Gov. Michelle Bowman.
Today’s Earnings Highlights (Consensus EPS Expectations)
Before the Open: ASML, BAC, BLK, FAST, MS
At the time of publication, Guilfoyle was long BAC, TSM, INTC, NVDA and AMD equity.
