ASML Holding NV: The Most Overlooked 5G Stock on the Market?

ASML stockLooking for 5G Stocks? Read This

One of the reasons 5G stocks have been popular is that many of them are names we’re familiar with. For example, the company that makes your smartphone and the company that bills you every month for wireless service are obviously going to do well in this 5G era.

But there are also lesser-known players in the 5G arena—and their potential should not be ignored.

Check out ASML Holding NV (NASDAQ:ASML), for instance. It’s a chipmaking equipment company headquartered in Veldhoven, Netherlands. ASML stock trades on both the Euronext Amsterdam and the Nasdaq under the same ticker.

The financial media rarely talks about this foreign player, but ASML is a name to be reckoned with in the semiconductor industry. The company has offices in more than 60 cities in 16 countries and serves major chipmakers around the world. At the time of this writing, ASML stock has a market capitalization of more than $250.0 billion.

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It may seem inappropriate to call a $250.0-billion company a “lesser-known player.” But the reality is, even though ASML stock is a mega-cap stock, it doesn’t get nearly as much attention as other tech stocks of similar size.

In fact, on ASML’s own web site, the company calls itself “The most important tech company you’ve never heard of.” (Source: “ASML At a Glance,” ASML Holding NV, last accessed April 23, 2021.)

The semiconductor industry has been benefiting from an explosive demand for chips recently, and some say a semiconductor supercycle could be looming in the distance. So, unsurprisingly, ASML’s business has been firing on all cylinders.

According to its latest earnings report, ASML generated €4.4 billion in net sales in the first quarter of 2021, which marked a staggering 79% increase from the €2.4 billion it earned in the first quarter of 2020. (Source: “ASML Reports €4.4 Billion Net Sales and €1.3 Billion Net Income in Q1 2021,” ASML Holding NV, April 21, 2021.)

Net bookings, which can be viewed as a measure of new orders, totaled €4.7 billion for the quarter.

At the bottom line, ASML Holding NV earned net income of €1.3 billion, or €3.20 per diluted share, in the first quarter of 2021. To put those numbers into perspective, the company’s net income in the year-ago period was €391.0 million, or €0.93 per diluted share.

In other words, the company’s profits more than tripled year-over-year.

ASML Holding NV has recently seen a substantial increase in demand across its product portfolio, and 5G was one of the reasons behind this increase.

When asked about how his outlook has changed for the industry since the beginning of this year, ASML’s chief executive officer, Peter Wennink, said,

We have seen a significant spurt in terms of customer demand. I think it’s driven by the things that we all know. It’s the digital transition, it’s the digital transformation, evidenced by the roll out of 5G across the globe, in Asia, the US and to a lesser extent in Europe, which actually drives artificial intelligence, High Performance Computing. All these developments and services and products that are driving the need for our systems. That’s been a big change as compared to three months ago.

(Source: “Transcript: Video Interview With ASML CEO Peter Wennink,” ASML Holding NV, April 21, 2021.)

Seeing that increase in demand, management expects 2021 to be a huge year for ASML. They project revenue growth toward 30% in 2021. Meanwhile, the company’s gross margin is expected to be between 51% and 52% in 2021, compared to 48.6% in 2020.

Another thing worth noting is ASML Holding NV’s willingness to return cash to investors. In January 2020, management announced a three-year ASML stock repurchase program, with an intention to purchase up to €6.0 billion of its own stock.

In its latest earnings report, the company said that, because of its expected strong cash generation, ASML will have the opportunity to continue making significant stock buybacks in the coming quarters, and therefore “expects an early completion of the current share buyback program.” (Source: ASML Holding NV, April 21, 2021, op. cit.)

A stock buyback program reduces the number of shares outstanding, thus allowing each remaining investor to own a slightly larger portion of a company.

ASML Holding NV (NASDAQ:ASML) Stock Chart

Chart courtesy of StockCharts.com

Analyst Take

Put it all together and it’s easy to see why ASML stock could be special. The company is well established, already profitable, and expected to deliver strong growth in terms of both revenue and profitability in the 5G era.

Adding in the fact that it returns cash to shareholders, I’d say ASML Holding NV is one of the top names worth considering for 5G stock investors.