ASML's financial report for the previous night unexpectedly detonated a bombshell, upheaving the entire semiconductor industry, with the core reason likely being that the demand growth for AI chips such as HBM cannot offset the decline in the logic chip sector.
Although ASML's revenue for the third quarter exceeded expectations, the orders were only half of what the market anticipated, with a total order value of €2.6 billion for the third quarter, significantly lower than the widely expected €5.6 billion. At the same time, the sales guidance for 2025 was revised downward, with profits for 2025 expected to be about 19% lower than the consensus forecast.
Analysts from Goldman Sachs and Morgan Stanley believe that the reason for the bombshell is that ASML's key customer, Intel, may be the key to the slowdown in demand, and delays in new nodes have also affected capacity expansion. Despite ongoing spending related to HBM and DDR5, these are not as dependent on EUV as the demand for logic chips, and therefore cannot offset the weakness in the logic chip sector.
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Furthermore, given the expected slowdown in sales for 2025, the market's focus has shifted to the outlook for 2026. J.P. Morgan believes that, despite some downward adjustment, ASML's earnings growth for 2025 is very close to 30%, and with plans to add new factories and expand existing capacity in 2026, accelerated growth should be seen in 2026.
The slowdown in demand in the logic chip sector is key.
ASML's total orders for the third quarter amounted to €2.6 billion, a decrease from the previous quarter's €5.6 billion and below market expectations, with EUV orders at €1.4 billion, lower than the expected €2.8 billion.
ASML's sales guidance for 2025 is €30 billion to €35 billion, with the forecast upper limit revised downward from the previous €30 billion to €40 billion. The Chief Financial Officer stated:
The weak 2025 guidance is due to the weakness seen this summer in foundries, logic, and the introduction of new memory capacities. It is now expected that only 50 EUV tools may be sold in 2025, which will also have a negative impact on profit margins.Morgan Stanley's latest report analyzes and points out that:
The order volume is significantly lower than expected, indicating weak market demand, especially with the postponement of orders from logic chip customers, although HBM (High Bandwidth Memory) orders are a bright spot.
Intel may be the key to the slowdown in EUV demand, ASML discussed the competitive dynamics in the logic sector, the slowdown in growth at new nodes, which has led to the postponement of factory capacity.
At the same time, the company also reminds us that despite continued spending related to HBM/DDR5, this is lower than the EUV intensity in logic, so the demand here cannot offset the weakness seen in logic.
In the third quarter sales, logic chips contributed 64% of total sales, and memory contributed the remaining 36%. Goldman Sachs also said:
Although the AI market is developing strongly, the recovery in other markets is slower, and it is expected that this situation will continue until 2025, leading to a cautious attitude among customers. In the logic chip sector, competition has led to a slowdown in the development of new nodes for some customers, which in turn affects the timing of EUV demand. In the storage sector, although HBM and DDR5 are strong, the increase in new capacity is limited due to customer caution.
Will it warm up in 2026?
A future question is - will 2026 be better than 2025?Despite the downward adjustment, ASML's revenue growth for 2025 is very close to 30%. With the planned addition of new factories and expansion of existing capacity in 2026, accelerated growth should be seen in that year. Some project or order deliveries have been postponed to 2026, which will help boost sales growth that year, and the industry is also in a stage where a cyclical recovery is easier to achieve. Assuming ASML can achieve higher sales growth than consensus expectations in 2026, for example, a 15% increase, and can achieve a gross margin of 54%, ASML's price-to-earnings ratio (P/E) for 2026 will be 22 times, lower than the industry average.