ASML and Tesla earnings preview; 3M and GE outlook disappoints

ASML to thrive under the US CHIPS Act

ASML, the so called crown jewel of European technology, will report earnings tomorrow before the market opens with analysts expecting revenue growth of 28% y/y and EPS growth of 8% y/y as demand for its lithography machines remains high. Announced capital expenditure plans from TSMC and other semiconductor companies should underpin a strong outlook while memory chip manufacturers are not expecting to add tailwind until late 2023 or before early 2024. The US CHIPS Act will continue to force massive capital expenditures on new semiconductor factories in both the US and Europe propping up the medium and long-term outlook for ASML. Today’s put-call ratio volume in the options market is 0.74 suggesting that speculators are positioning themselves for a positive surprise on Q4 earnings and the outlook. Analysts price target is currently €701 vs the current price of €615.

Tesla’s most important earnings release

There is no other stock in the world that has created as much drama during the pandemic as Tesla spearheading the trading frenzy among retail investors and believe in high growth scenarios. While Tesla finished 2021 on a high last year turned out to be a disaster for the stock price declining 65% as Elon Musk’s acquisition of Twitter and public opinions scared investors. In the final quarter of the year it became apparent that Tesla had made a gross forecasting error on demand as price hikes during the year forced because of more costly batteries combined with higher volatility in electricity prices caused demand to weaken. So far this year sentiment has come back with the stock rallying 33% from its lows and with Tesla’s recent sharp price reductions everything is up in the air.

Many have interpreted the price reductions as a move out of strength and others have seen it as a weakness. The truth is probably somewhere in between as Tesla is naturally doing it because demand has weakened, but with one of the highest operating margins in the industry Tesla has the strategic flexibility to sacrifice profitability for market share and pressure its competitors. But investors should note that when you are running a business with a 25% gross margin and you lower prices by 10-30% across your products then your bottom line will take a hit. The question is whether the demand response is big enough to off the price reduction to see the bottom line grow this year. That is what investors are going to find out in Tesla’s outlook tomorrow when it releases its Q4 earnings.

Analysts expect revenue growth of 36% y/y and EPS of $1.12 up 64% y/y. Analysts are still very bullish on revenue growth for 2023 with expectations at 30% growth despite the recent slip in deliveries and three quarters of growing difference between production and deliveries. This is also reflected in the consensus price target at $190 vs the current price of $144. Traders and investors are also expressing a bullish take on Tesla with the put-call ratio on volume being 0.79 and the put-call open interest ratio at 0.65