Why ASML Holdings Fell in October
Key Points
ASML reported strong Q3 numbers and guided to accelerating Q4 growth.
Management also reported that it was increasing its capacity expansion plans for 2028.
Yet fears over the end of the build-out seemed to overwhelm the strong results.
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Shares of ASML Holdings (NASDAQ:ASML) fell 11.5% in October, according to data from S&P Global Market Intelligence.
ASML reported solid third-quarter results mid-month and gave a strong Q4 guide; alas, these strong earnings weren't enough to offset the extreme sell-off in AI-related stocks, especially semiconductor stocks, ahead of the November midterms.
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ASML reports accelerating AI-driven growth
ASML holds a monopoly on extreme ultraviolet (EUV) technology, which is required to produce all leading-edge logic and memory chips that power the AI revolution. As such, there isn't really a debate about whether ASML has strong near-term growth, but rather about how much growth there will be, and for how long.
In the third quarter, ASML revenue grew 55.2% over the prior year to 11.7 billion Euros, while adjusted earnings per share rose 135.9% to 12.53 Euros per share. Revenue actually slightly missed expectations, but ASML's bottom line beat on expanding margins. Moreover, ASML guided for fourth-quarter numbers well ahead of expectations, with revenue in the range of 14.2 billion to 15.2 billion Euros, while maintaining its higher-than-historical margins.
Not only that, but ASML also said that its customers' demand forecasts had increased so much that it was looking to expand capacity in 2028 by more than the 30% it was already planning.
Yet even all this good news was overwhelmed by anti-AI stock sentiment that took hold in October and continued into November. Fears over the sustainability of growth at leading AI labs, along with consternation over the impact of a Democratic "wave" election, appeared to overshadow ASML's strong results.
Image source: Getty Images.
ASML is a buy on the dip
After the Democratic "wave" last week, AI-related semiconductor stocks sold off hard, and now appear to be pricing in the end of the current cycle next year or in 2028.
However, this may be an overblown reaction. After all, not even a month ago, ASML had conveyed that its customers were seeing stronger demand for longer. If the build-out continues with only mild modifications, then ASML is a strong buy on this dip.
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Billy Duberstein and/or his clients have positions in ASML. The Motley Fool has positions in and recommends ASML. The Motley Fool has a disclosure policy.
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