Shares of Dutch chip equipment maker ASML (NASDAQ:ASML) fell more than 16% on Tuesday, their biggest one-day drop since the start of the coronavirus crisis, wiping out about $38 billion in market value in a single day.
The company, which is considered the most valuable in the technology sector in Europe, announced a negative forecast for its sales in 2025, as it expected its revenues to range between 30 and 35 billion euros, which represents the lower range of its previous expectations.
The company also said net bookings for the third quarter, which ended in September, came in at 2.6 billion euros, well below analysts' expectations.
Important signals from Investing Pro
Data indicates that the company's stock is trading at a high P/E multiple.
However, the tool also indicates that cash flows can adequately cover interest payments. If a company’s cash flows are more than enough to cover its interest payments, it indicates a strong interest coverage ratio. This ratio is calculated by dividing a company’s earnings before interest and taxes (EBIT) by its interest expense, which helps measure a company’s ability to pay interest on its debt. A high ratio can be considered a positive or bullish sign, meaning that the company has strong financial health and is less likely to default on its debt.
On the other hand, Investing Pro data also indicates that the stock is currently undervalued after yesterday's record low, with its fair value now at around $794, meaning it has room to rise by around 7.8%.
Impact of the downturn on other companies
The decline led to a decline in shares of other chip companies, including Nvidia, Advanced Micro Devices and Broadcom, which saw declines after the report.
ASML’s third-quarter net bookings came in at €2.6 billion ($2.83 billion), well below the consensus estimate of €5.6 billion. However, net sales beat expectations at €7.5 billion.
Results published due to technical error
ASML explained that the early publication of its results was the result of a technical error that led to the report being mistakenly published on part of its website.
The company faces a more challenging business outlook in China due to export restrictions imposed by the United States and the Netherlands on shipments.
Last month, the U.S. government imposed new export controls on sensitive technologies to China, including advanced chipmaking tools. The Dutch government also announced plans to control exports of ASML equipment to China.
Also on Tuesday, Bloomberg reported that Biden administration officials discussed limiting sales of Nvidia’s advanced AI chips to certain countries in the interests of national security, dampening investor sentiment around the semiconductor sector.
The company's chief financial officer, Roger Dassen, said he expects the company's China business to show a more normal proportion of its order book and also of its business. He noted that the company expects China to represent about 20% of its total revenue next year, in line with its historical sales ratio.
Analysts at Cantor were disappointed with ASML’s negative outlook, noting that it would weigh on semiconductor stocks. However, they added that the company’s updated outlook does not signal any change in the AI growth story.
Asian stocks
Asian chip stocks fell on Wednesday after Dutch semiconductor equipment maker ASML posted a disappointing sales outlook, dragging down global shares in the sector.
Shares of Japanese semiconductor maker Tokyo Electron were the biggest losers, falling about 10%. Renesas Electronics fell more than 3%, and Advantest, a test equipment supplier, fell 0.8%.
Taiwan Semiconductor Manufacturing Company and Hon Hai Precision Industry - known internationally as Foxconn - fell by as much as 3.3% and 1.6%, respectively.
South Korean chipmaker SK Hynix, which makes high-bandwidth memory chips for Nvidia’s AI applications, fell 1.6%, while Samsung Electronics, the world’s largest maker of DRAM chips, saw its shares fall 1.9%.
Losses in the region’s semiconductor sector also dragged down major indices. Japan’s Nikkei 225 lost more than 2%, South Korea’s Kospi fell 0.6% and Taiwan’s weighted index fell 0.7%.
