Prediction: ASML Will Join the $800 Billion Club in 2029

Artificial intelligence has created some enormous winners in the stock market, particularly among semiconductor companies. But one of my favorite companies that plays a key role in the AI boom doesn't make chips at all.

That company is ASML (NASDAQ: ASML), the Dutch manufacturer of semiconductor equipment. And I believe ASML could reach a market capitalization of $800 billion before the end of 2029.

Image source: Getty Images.

ASML has something its competitors don't

ASML is unique because of its monopoly on extreme ultraviolet (EUV) lithography machines, which chipmakers use to produce the world's most advanced semiconductors. And here's why that's important: Chips are designed by companies like Nvidia and AMD, and they're fabricated by manufacturers like Taiwan Semiconductor Manufacturing and Samsung Electronics. But those foundries depend exclusively on ASML and its EUV technologies to manufacture increasingly powerful chips.

It shows in ASML's bottom line. Revenue in the third quarter was a company record of 11.7 billion euros ($13.6 billion), with net income of 5 billion euros. ASML's gross margin was 57.5%, helped by strong demand for upgrades to equipment already installed at customer facilities.

That revenue appears likely to continue, as management expects demand to exceed its planned production capacity in both 2027 and 2028. Customers are already expressing interest in placing orders for 2029 and 2030, the company said.

The math behind an $800 billion valuation

At this writing, ASML has a market capitalization of nearly $581 billion, up from $324.75 billion at the end of 2021. Over nearly five years, the company's market value has grown at roughly a 12.7% compound annual growth rate (CAGR) -- even though ASML had a horrendous 2022, when its stock fell 33%.

If ASML simply maintains that growth rate, its market capitalization would approach $750 billion by the end of 2028, cross $800 billion around the middle of 2029, and finish that year near $846 billion.

That's hardly an outrageous assumption, particularly given the company's earnings outlook.

Analysts surveyed by Yahoo! Finance expect ASML to earn 41.48 euros per share this year, up roughly 68% from a year ago. And in 2027, they are projecting another 36% increase in EPS, bringing earnings to 56.43 euros per share.

That's impressive growth for a company already worth nearly $600 billion.

But here's the thing -- ASML doesn't even need to maintain that earnings growth indefinitely to reach my target. Profits could grow considerably more slowly after 2027, and its valuation multiple could contract, while the company's market capitalization continues to climb.

With customers already looking several years ahead to secure equipment, I think ASML has a compelling path to an $800 billion valuation by 2029.

Patrick Sanders has positions in Nvidia. The Motley Fool has positions in and recommends ASML, Advanced Micro Devices, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.