Geopolitical risks outweigh solid results.
Semiconductor equipment manufacturer ASML (ASML -11.58%) reported a better-than-expected quarter, but the results were overshadowed by increasing geopolitical concerns.
Shares of the Dutch tech company traded down 10% as of 10:30 ET on reports the United States is considering tighter restrictions on tech sales to China.
Strong quarter, tough questions
ASML makes the machines that make semiconductor chips, providing the technology that makes tech trends including artificial intelligence possible. The company reported second-quarter net profit of 1.58 billion euros on net sales of 6.24 billion euros, topping the 1.43 billion-euro profit on sales of 6.03 billion euros that analysts had expected.
Net bookings totaled 5.6 billion euros, up 24% from a year ago, and ASML generated a 51.5% gross margin.
“In line with previous quarters, overall semiconductor inventory levels continue to improve,” CEO Christophe Fouquet said in a statement. “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.”
But investors were more focused on a report that the Biden administration has told allies it is considering drastic steps to crack down on ASML technology going to China. The U.S. government is considering restricting ASML’s ability to service and repair systems already operating in China, putting ASML and other foreign companies on a equal footing to U.S. companies.
Is ASML stock a buy?
The geopolitical risk is real and unlikely to go away until at least after the U.S. election. Investors need to be braced for volatility and headline risk in the months to come.
But for long-term-focused investors, there’s a lot to like about ASML. The company is the only source of the massive machines necessary to make the smallest and most powerful chips, giving it a powerful competitive position. The focus on China could also help stimulate future sales as semiconductor manufacturers look to diversify their geographical footprint away from Taiwan.
ASML is a stock that nearly never goes on sale, and even after the Wednesday decline, the shares still trade at 48 times earnings. Should it fall further on the uncertainty, investors could get a buying opportunity.
