Semis get smacked – is ASML a preview of what's to come?
18th July 2024
Welcome to AI Collision 💥,
In today’s collision between AI and our world:
When great is just not good enough
The King’s Speech
Fighting zebras
If that’s enough to get the ceremony pomping, read on…
AI Collision 💥
ASML is a Dutch semiconductor industry giant.
It is a crucial cog in the supply chain for the world’s semiconductor industry.
The company makes machines known as photolithography equipment which in turn are used in the manufacturing of semiconductors.
What comes to mind when you think “photolithography equipment”? Well initially probably not much.
But here’s a machine that ASML has been touting as its best and most important for the AI explosion.
Apparently, this thing weighs as much as two Airbus A320s… about 125 tonnes.
It’s also what helps companies to make AI chips.
Here’s a more detailed breakdown of ASML’s activities and products…
Photolithography Equipment: ASML specialises in producing advanced photolithography machines, which are used to etch microscopic patterns onto silicon wafers. These patterns form the intricate circuits in microchips. The company’s machines use light to transfer a pattern from a photomask to the wafer.
EUV Technology: ASML is particularly known for its cutting-edge Extreme Ultraviolet (EUV) lithography technology. EUV machines use extremely short wavelengths of light (13.5 nm) to create even smaller and more precise patterns on wafers. This technology is essential for producing the latest generations of microchips, enabling higher performance and lower power consumption in electronic devices.
DUV Technology: In addition to EUV, ASML also manufactures Deep Ultraviolet (DUV) lithography systems, which use longer wavelengths (193 nm) and are still widely used in semiconductor fabrication for various production steps.
Software and Metrology Solutions: ASML provides advanced software and metrology systems to enhance the accuracy and efficiency of the photolithography process. These tools help in aligning the patterns correctly and inspecting the wafers for defects.
ASML’s equipment and technology are essential to the semiconductor manufacturing process, enabling the production of increasingly powerful and efficient chips.
So, when the company reported earnings this week, as you would expect, and I would expect, it beat market expectations…
Net sales: 6.24 billion euros versus 6.03 billion euros expected
Net profit: 1.58 billion euros versus 1.43 billion euros expected
With news of beating earnings expectations, you’d expect the stock to fly the next day. Well, not in this market.
ASML was down 10.5% in trading on Wednesday. Beat earnings, stock takes a beating.
Get used to that this earnings season.
The reason for the stock price beat-down was all around future earnings guidance. According to a CNBC report:
ASML now said it forecast third-quarter net sales of between 6.7 billion euros and 7.3 billion euros. Analysts had expected the company to forecast revenue of 7.6 billion euros in the third quarter.
ASML CEO Christophe Fouquet said,
“While there are still uncertainties in the market, primarily driven by the macro environment, we expect industry recovery to continue in the second half of the year,”
“We see 2024 as a transition year with continued investments in both capacity ramp and technology. We currently see strong developments in AI, driving most of the industry recovery and growth, ahead of other market segments.”
What a way to water down the AI hype and excitement, Christophe!
I think ASML is the yardstick for this earnings season.
The playbook will be simple. Expect AI-related companies to beat earnings expectations. I think there will be a lift in revenues and profits almost across the board.
But what will determine the movement of a company’s stock price will be what it says about the future of its AI business in the next 12 to 18 months.
The market is baying for AI blood (as we reported the other week) with the doomers out in full force just looking for a reason to get the fear-train rolling.
Anything that softens future guidance is all the fuel that will be needed.
And you know what?
That’s perfectly fine.
Because ASML is still a crucial part of the semiconductor industry. And other AI-related stocks that are down 4%, 5%, 10% or more are simply at a discount when you’re looking at the long-term impact of these companies and this market.
So, strap in, because other companies are about to drop earnings in the next few weeks, from Taiwan Semiconductor to Texas Instruments, Apple, Amazon, Google and Netflix… it’s all incoming and it’s going to make the market nice and volatile.
But if they “do an ASML” and beat expectations but give a dour forecast, get ready for some big and mega-cap stocks trading at a handy discount.
AI gone wild 🤪
I did it!
I sat through the entire King’s Speech.
The pomp and ceremony of it all was amusing to say the least. It’s not the first King’s Speech I’ve seen but it was certainly one of the most boring.
I had expected that we might see some exciting growth-oriented AI announcements, some detail on bills to come about high-tech investing and growth in the UK.
Nup.
None of that.
The King mentioned AI once. And it was said about placing “requirements” on companies developing the most powerful AI models.
That. Was. It.
From there it was all about nationalising the buses, trains and clean energy companies of the UK.
It was about building and “modernising” the way in which things get done.
In short, it was as Labour a speech as a Labour speech could get and very underwhelming.
Even Politico described it as a “gaping hole” in the King’s Speech:
An AI bill
Labour’s manifesto promised to support the development of the Artificial Intelligence sector and to introduce regulation on companies developing the most powerful AI models. But some expectations of an explicit AI bill in the king’s speech did not come to pass.
Instead, the king nodded to the government seeking to “establish the appropriate legislation” to regulate the AI sector, stopping short of introducing a specific AI bill.
Translation: the legislation ain’t ready to go yet.
So, it looks like the government has delivered as expected… nothing at all.
Boomers & Busters 💰
AI and AI-related stocks moving and shaking up the markets this week. (All performance data below over the rolling week).
Boom 📈
Cyngn (NASDAQ:CYN) up 81%
iRobot (NASDAQ:IRBT) up 33%
Zeta Global Holdings (NYSE:ZETA) up 21%
Bust 📉
Vicarious Surgical (NASDAQ:RBOT) down 12%
Nvidia (NASDAQ:NVDA) down 11%
AMD (NASDAQ:AMD) down 10%
From the hive mind 🧠
There’s always someone worried about the rise of AI in their industry. Of course, you would be a little worried about the idea of a machine doing a better job than you. But for game developers, I don’t know, I just don’t think people will respond to AI creation in the same way we enjoy human-created experiences.
It’s not just the response to earnings that has the market moving AI-related stocks. Remember, a lot of this industry is Taiwan dependent. And when Trump takes a somewhat combative approach to Taiwan, it’s going to rumble the market.
Remember how companies would “greenwash”? Many still do, but at least now they can get in trouble for it. Well, how about the term, “AIwash”? That’s right, expect to see a lot of companies touting their AI-ness when in reality, they’re just blowing smoke up our… you get the idea.
Artificial Polltelligence 🗳️
After watching the King’s Speech from his procession to Parliament, the cannons firing and the event itself, there were times when I couldn’t help but simply chuckle at the absurdity of it all.
I think the biggest laugh I got was when they slammed the doors shut as “Black Rod” approached. Black Rod is forced to bang on the door and then from within they call out, “It’s Blackrod.”
Anyway, this week’s poll is kind of un-AI related. But it is something I am curious about considering the AI-aware readers we have here at AI Collision…
Weirdest AI image of the day
Spain outlaws bulls, switches to fighter Zebras that can defend themselves – r/Weirddallee
ChatGPT’s random quote of the day
"A crown is merely a hat that lets the rain in." — Frederick the Great
Thanks for reading, and don’t forget to leave comments and questions below,
Sam Volkering
Editor-in-Chief
AI Collision
The one fact I think you left off is that each of those machines in the photo cost 💲 340,000,000! Yup….a third of a billion dollars. And that before any maintenance and services contracts. Amazing….
King over president any day of the week. Our monarchy brings in multiple millions in tourism every year.