Shares of memory leader Micron (NASDAQ: MU), Applied Materials (NASDAQ: AMAT), and KLA Corporation (NASDAQ: KLAC) plunged on Tuesday, down 4.3%, 10.9%, and 15.5%, respectively, as of three:28 p.m. ET.
Semiconductor stocks largely sold off across the board today after equipment leader ASML Holdings (NASDAQ: ASML) by chance leaked its third-quarter results and outlook, which were alleged to be published tomorrow.
The outcomes and guidance were highly disappointing, sending fears across the sector.
ASML disappoints on a “slower than expected” recovery
Within the leaked press release, ASML showed 11.2% revenue growth and 9.1% earnings-per-share (EPS) growth, which are not terrible growth figures by any means, with the highest line exceeding the corporate’s guidance last quarter.
Nevertheless, the bookings figure and outlook for 2025, also contained within the press release, were more worrisome. Net bookings, which reflect revenue plus or minus the change in orders in backlog, were only 2.6 billion euros (~$2.8 billion), far below expectations of 5.39 billion euros (~$5.87 billion).
Furthermore, management gave preliminary revenue guidance for 2025 of between 30 billion and 35 billion euros (~$33 billion to $38 billion). While that also portends mid-teens growth above expected 2024 figures of 28 billion euros (~$30 billion), it was below the 36.3 billion euros (~$39.5 billion) analysts were expecting.
Management noted within the press release:
While there proceed to be strong developments and upside potential in AI, other market segments are taking longer to get well. It now appears the recovery is more gradual than previously expected. This is anticipated to proceed in 2025, which is resulting in customer cautiousness.
ASML is probably going referring to Intel, which has seen lower near-term demand, and Samsung, which has been beset by operational issues and is pushing out its fab expansions. ASML management also noted limited capability additions for DRAM memory suppliers, as most are converting unused equipment for non-artificial intelligence (AI) memory to production lines for HBM and DDR-5 for AI.
The semiconductor capital equipment sector could be very linked. So, if a big fab is pushed out, not only will ASML see slower growth, but so will the etch and deposition equipment supplied by Applied Materials and the metrology and inspection equipment provided by KLA Corporation together with it. Thus, it’s no surprise to see each of those stocks dump to ASML today by an analogous amount.
Micron can also be down, on condition that ASML indicated softer end-demand across non-AI markets. Nevertheless, it may be positive for Micron that memory rivals are scaling back their investments in memory capability. Unlike that of advanced logic chips, memory pricing can fluctuate loads based on supply and demand. So, the discipline to tug back investments could possibly be an excellent thing for memory pricing. That is likely why Micron’s stock is holding up higher than the others.
The sell-off could also be an excellent opportunity
This sell-off could also be a possibility for chip investors because the recovery in non-AI markets could be very more likely to occur in some unspecified time in the future, even when a full recovery doesn’t occur as fast as some forecast. In any case, the midpoint of ASML’s guidance still points to 16% growth next yr. And pushing fab buildouts from 2025 to 2026 should entail more sustained growth beyond 2025.
It appears that evidently 2024 corporate budgets could have been dominated by expensive AI spending, crowding out refreshes of non-AI servers and PCs. Nevertheless, this aging equipment may have to be refreshed eventually, especially since Windows 10 support can be phased out in October 2025. Moreover, as more AI-enabled devices come to market, that must be a boon for chip content across all devices in PCs, smartphones, and auto markets which might be still lagging today.
So, for those investors with a long-term view, this sell-off based on the medium-term outlook could also be a possibility to choose up high-quality semiconductor names, corresponding to these three, for the long haul.
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Billy Duberstein and/or his clients have positions in ASML, Applied Materials, Intel, KLA, and Micron Technology. The Motley Idiot has positions in and recommends ASML and Applied Materials. The Motley Idiot recommends Intel and recommends the next options: short November 2024 $24 calls on Intel. The Motley Idiot has a disclosure policy.
Why Semiconductor Stocks Micron, Applied Materials, and KLA Corporation Plunged Today was originally published by The Motley Idiot