On Tuesday, ASML Inc. (NASDAQ:AS:ASML), a key player in the semiconductor industry, saw its price target significantly increased by Redburn-Atlantic to €900 per share, a 36% rise. This adjustment comes on the heels of a substantial quarter-over-quarter surge in the company's fourth-quarter 2023 orders, which exceeded expectations due to the competitive push in artificial intelligence, high bandwidth memory, and GPUs.
The analyst from Redburn-Atlantic highlighted that the robust order intake, which marked a 253% increase from the previous quarter, signals the onset of an upcycle. This positive development has led to an upward revision of fiscal year 2024 through 2026 estimates by 3-6%, reinforcing confidence in the company's financial guidance for FY25. Despite the upgrade to a Neutral rating, the analyst pointed out several concerns.
One such concern pertains to the methods ASML may have employed to achieve the order intake beat. The company waived the requirement for €748M in advanced customer deposits, which correlates to over €5B in orders, accounting for more than half of the €9.2B in orders booked. This move, along with €246M in receivables, is said to have contributed approximately €1B or 18% to the operating cash flow, a stark contrast to the previous year's figures.
Looking ahead, ASML faces the expiration of its key immersion lithography patents starting in September 2024. However, the impact on ASML's most profitable segment is expected to be mitigated by the cross-licensing agreement with Nikon (OTC:NINOY) established in the first quarter of 2019. Beyond 2024, the focus is likely to shift to the potential decrease in lithography intensity due to vertical scaling and the commercial viability of high NA EUV technology.
In summary, while acknowledging the less-than-impervious nature of ASML's business model, the Redburn-Atlantic analyst suggests that the current rising cycle in the industry is poised to benefit the company in the near term.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.