Why ASML Holdings Fell in October

In October, ASML Holdings (ASML) experienced a notable 11.5% decline in shares value, according to S&P Global Market Intelligence reports. Despite the previous quarter's robust performance and bullish guidance for the fourth quarter, the strong sell-off in AI-related stocks, particularly semiconductor shares, ahead of the November midterms overshadowed ASML's impressive earnings.

ASML secures a monopoly on extreme ultraviolet (EUV) technology, a key component in manufacturing state-of-the-art logic and memory chips that drive the AI revolution. Consequently, the discussion isn't merely about the company's substantial growth potential, but rather the extent and longevity of this growth. During the third quarter, ASML's revenue surged by 55.2% year-over-year to 11.7 billion Euros, while adjusted earnings per share climbed by 135.9% to 12.53 Euros per share.

Although revenue slightly underperformed market expectations, ASML's financials showcased expanding margins. Furthermore, ASML projected fourth-quarter earnings within the range of 14.2 billion to 15.2 billion Euros, maintaining higher-than-average margins. Notably, ASML's customers expressed heightened demand forecasts, prompting the company to contemplate expanding capacity in 2028 beyond the 30% it had initially planned.

Nonetheless, the positive news was largely overshadowed by the prevailing apprehensions about AI stock sustainability, coupled with concerns over the potential impact of a Democratic wave election. These apprehensions appeared to eclipse ASML's impressive financial results. Though the Democratic wave transpired last week, AI-related semiconductor stocks suffered significant losses, and now speculate the end of the current cycle by the following year or 2028.

However, this reaction may be premature. Only a month prior, ASML had expressed that customers were foreseeing stronger demand for an extended period. If the expansion proceeds with minor adjustments, ASML appears to be a strong buy amidst the current dip.