Ready To Thrive #1 - ASML
The Indispensable Powerhouse of the Tech World
Hi there, Hidden Market Gems here ! 👋
As the end of the year is near, I wanted to gift you guys this article. I will not be posting in the following week as I celebrate Christmas. But that said, today, Thursday and Friday I will sent you this 3 little episodes of “Ready To Thrive” to finish 2024 as it should.
This new concept of "Ready to Thrive" is all about spotting companies unfairly punished by the market (in my opinion)—victims of overreaction, bad headlines, or short-term noise. These aren’t broken businesses; they’re solid players with undeniable strengths, temporarily knocked down by factors that don’t reflect their real value. I like to think of them as coiled springs, primed for a comeback. When the dust settles and the market wakes up, these companies don’t just bounce back—they soar, proving that their downturns were nothing more than hidden opportunities for those paying attention and it all started with this.
I all started when I posted this “Coup de Gueule” (French sentence to say outburst), I said to myself, “wait, there is not only Novo Nordisk in this situation, I must write about it!” :
And here we are. I sat, open Notion (‘cause I write on Notion then edit things on Substack), and thought about a few compagnies in this case. And guess what, it took me just 5 min to identify 3 of them : ASML, LVMH and of course, Novo. Next two articles will be for Paid Subscribers.
Today we will focus on ASML, Thursday, Novo’s turn and then LVMH the day after.
As the article is too long for email, you should read it Substack :
Now, let’s dive in it:
Have You Been Living in A Cave? I Got You
If you don’t already know why ASML is the unsung hero of the technology revolution, let me spell it out for you. This isn’t just another “AI” company; it’s the indispensable cornerstone upon which the entire semiconductor industry relies. Every smartphone, AI-powered supercomputer, electric vehicle, and 5G network owes its existence, in part, to the chips made possible by ASML’s revolutionary technology. Without ASML, the cutting-edge advancements driving today’s digital economy would grind to a halt.
While the market’s recent panic has caused its stock to dip, this isn’t a reflection of its fundamentals—it’s a momentary lapse of reason. Savvy investors know one immutable truth: in every gold rush, the shovel seller is the real winner. And in the modern tech boom, ASML doesn’t just sell shovels; it sells the most sophisticated, game-changing tools on the planet, commanding an irreplaceable position in the semiconductor supply chain. Its machines are not luxuries—they are necessities for the world’s leading chipmakers, putting ASML at the heart of the technological future.
ASML: The Essential Gear in the Machine
I know you guys know ASML, but just to be sure: ASML specializes in lithography machines, the cutting-edge tools used to etch microscopic circuits onto silicon wafers. This process is the backbone of chip manufacturing, and chips, in turn, are the backbone of everything in our modern world—from smartphones and cloud servers to AI supercomputers and autonomous cars.
The Tech :
Why ASML’s Moat is Unassailable
ASML’s moat isn’t just about market dominance; it’s about technological singularity. Here’s what sets them apart:
ASML’s dominance begins with its monopoly on EUV lithography (see the image above), one of the most complex technologies ever developed. The company has spent decades and billions of euros perfecting this breakthrough, creating a lead so insurmountable that competitors like Nikon and Canon don’t even come close. The barriers to entry in this space are staggering. Each EUV machine costs over $200 million, weighs an astonishing 180 tons, and is composed of more than 100,000 precision-engineered parts sourced from 5,000 suppliers worldwide. Replicating this feat isn’t just hard—it’s practically impossible. And then there’s the strategic lock-in: ASML’s customers—giants like TSMC, Samsung, and Intel—literally cannot produce cutting-edge chips without its machines. For these companies, ASML’s technology isn’t just an option; it’s a lifeline for staying competitive in the semiconductor race.
The Dip: What Happened?
Over the past few months, ASML’s stock has fallen roughly 25%, and here’s why:
U.S.-China tech restrictions have raised concerns about future sales, as China accounts for ~15% of ASML’s revenue.
ASML accidentally released its third-quarter results earlier than planned on October 15, 2024, due to a "technical error". This premature disclosure revealed a revenue outlook for 2025 that fell short of expectations, leading to a 15.64% drop in its stock on the Amsterdam Exchange—the steepest decline in 26 years. Investors reacted negatively to a significant decrease in new orders, which amounted to €2.6 billion, well below analysts' forecasts. ASML has since apologized for the mistake and announced that an investigation is underway to determine the exact cause.
But here’s the deal: these are temporary headwinds. ASML’s structural growth story remains rock-solid.
Why ASML is a Hidden Gem
Let’s get to the good stuff: why this dip is a gift for long-term investors.
1. AI Needs Chips, Chips Need ASML
The AI boom isn’t slowing down. Training AI models like ChatGPT or Google Bard requires enormous computational power, which depends on advanced semiconductors. Every AI breakthrough you hear about—from generative models to autonomous vehicles—runs on chips made possible by ASML’s EUV technology.
The idea that the market might slow down is nothing short of wishful thinking from those who fail to see the bigger picture. OpenAI didn’t create ChatGPT by holding back—it poured immense resources ($$$) into training models on supercomputers powered by the world’s most advanced chips. Amazon, meanwhile, isn’t just dominating the cloud; it’s on a mission to revolutionize it, driving demand for ever-more-powerful infrastructure that relies heavily on cutting-edge semiconductors. And if you think Google is sitting idly by, listen closer—they’re laughing quietly in the background, armed with transformative AI projects and a relentless hunger for computational power.
The AI boom is a race that shows no signs of slowing, and ASML is the indispensable supplier fueling every step of this relentless march forward. Face it.
🧿 Note: NVIDIA’s $1.6 billion H100 GPUs are manufactured using ASML’s lithography machines. Without ASML, the AI revolution simply wouldn’t exist…
2. Semiconductor Demand is Secular, Not Cyclical
While consumer electronics may be in a temporary slump, the long-term growth drivers for chips are undeniable:
Because the rise of cloud computing is a major driver of semiconductor demand, as data centers continue to scale up to support the explosive growth of AI and big data applications. These facilities require increasingly advanced chips to process massive workloads efficiently, and ASML’s technology sits at the heart of their production. This surge is evident in the global data center market, which was valued at approximately $194.81 billion in 2022 and is projected to grow at a compound annual growth rate (CAGR) of 10.9% from 2023 to 2030.
Also…
The Extreme Ultraviolet (EUV) lithography market is experiencing explosive growth, driven by the rapid evolution of semiconductor technologies. According to Grand View Research, the market is expected to grow at a compound annual growth rate (CAGR) of 17.3% between 2024 and 2030, reaching tens of billions of dollars in value. This surge reflects increasing demand for smaller, more powerful electronic devices that require ultra-precise lithography techniques. EUV has become a critical technology to meet the needs of booming sectors such as artificial intelligence, 5G networks, and the Internet of Things, while continuing to push the boundaries of Moore’s Law.
Electric cars add another layer of demand, as each EV requires two to three times more chips than a traditional combustion engine vehicle. From battery management systems to autonomous driving features, semiconductors are indispensable to the EV revolution…
Meanwhile, the rollout of 5G networks and the expansion of the Internet of Things (IoT) are connecting billions of devices globally. Each connected device—from smart home systems to industrial sensors—relies on advanced chips, further cementing ASML’s role as the cornerstone of modern semiconductor manufacturing.
I stop here with examples…
3. Backlog = Predictable Cash Flow
ASML’s order backlog stands at over €40 billion. This isn’t speculative revenue; it’s guaranteed work for years to come. Even in a downturn, ASML’s backlog acts as a financial shield, ensuring stability while others flounder. Even during economic downturns or industry slowdowns, this backlog provides ASML with an unparalleled layer of financial insulation. While other companies may struggle with unpredictable sales cycles, ASML has visibility and predictability for years to come. It’s not just a safety net—it’s a testament to the trust and reliance that the semiconductor ecosystem places on ASML. This guaranteed workload positions ASML as one of the most stable players in an otherwise cyclical industry, allowing it to continue investing in innovation while competitors are forced to scale back. Everybody wants to sleep at night, right?
4. Geopolitical Tailwinds
Here’s the irony: while China restrictions are a short-term headwind, U.S. and EU subsidies for domestic semiconductor manufacturing are a massive tailwind. ASML will play a starring role in every new government-backed chip fab from Arizona to Dresden… But one must stay aware of what happens in the following months.
Catalysts for Rebound
As the adoption of AI, Cloud, and other super-revolutionary techs, semiconductors—and by extension, ASML’s lithography machines—is set to surge. AI applications, from generative models like ChatGPT to autonomous systems, rely on unique chips that can only be manufactured using ASML’s technology. Adding to this momentum is ASML’s development of High-NA EUV technology, its next-generation lithography tools designed to extend Moore’s Law and secure its technological dominance for years to come. Finally, it’s worth remembering that semiconductor cycles are a familiar pattern in the industry. While demand might ebb in the short term, it always rebounds, and when it does, ASML will be the first to benefit, thanks to its irreplaceable role in chip manufacturing… This is it, when you are a monopoly.
Hidden Market Gems’ Take: Why ASML Deserves Your Attention
One sentence : a monopoly in one of the the greatest sector of our time.
ASML isn’t just a great company—it’s a one-of-the-kind foundational asset for the entire tech ecosystem. Its monopoly on EUV lithography makes it indispensable for chipmakers, and its growth story is intertwined with the most transformative trends of our time: AI, quantum computing, cloud, and EVs.
At current prices, the market is giving you a rare chance to own the shovel seller of the shovel sellers of the digital gold rush.
See you on Thursday guys 👋
This newsletter and its articles are for informational purposes only and do not constitute financial advice or investment recommendations. Investing in financial markets involves risks, including the risk of loss of capital. Always conduct your own research and consult with a qualified financial advisor before making any investment decisions. The opinions expressed are those of the author and do not necessarily reflect the views of any financial institution.