ASML Q4 2024 Earnings Preview: Navigating Disruption in a Rapidly Changing Market

Key points:

• Earnings Call Focus: ASML’s Q4 2024 earnings call will be crucial for understanding its response to emerging challenges, including DeepSeek’s disruptive AI model and shifting demand for high-end chips.
• Resilience Amid Challenges: While ASML faces headwinds from geopolitical tensions and customer concentration, its monopoly on EUV lithography and strong recurring revenue streams provide a solid foundation.
• DeepSeek’s Disruption: The rise of DeepSeek highlights China’s growing ability to innovate under constraints, potentially challenging ASML’s market dominance and raising questions about the effectiveness of U.S. export controls

ASML, the Dutch leader in advanced semiconductor equipment, is preparing to release its Q4 2024 earnings on 29 January 2025. With market dynamics shifting due to the emergence of DeepSeek, a Chinese AI startup, and the broader implications of geopolitical tensions, this earnings report comes at a critical point in time. Investors will closely scrutinise both the results and the earnings call, as ASML’s management provides insight into how the company plans to navigate these emerging challenges.

Why This Earnings Call Matters

The financial results are important, but the earnings call will likely be the main event, offering investors a clearer understanding of ASML’s response to recent disruptions. Key areas of focus include:

• EUV Demand: Will ASML provide reassurance about the long-term adoption rates of its cutting-edge lithography systems?
• DeepSeek’s Impact: Investors will look for comments on how the emergence of DeepSeek’s cost-effective AI models might alter demand for high-performance chips and, by extension, ASML’s equipment.
• Future Strategy: How will ASML adapt to geopolitical challenges and shifting market dynamics to maintain its leadership in the semiconductor supply chain?

What’s said during this call could have significant implications for ASML’s stock price and the broader technology sector.

Q4 2024 Expectations

Despite the uncertainty, analysts expect ASML to report strong results:

• Revenue: Forecasted at EUR 9.0 billion, reflecting a robust year-on-year growth of 26.6%.
• Earnings Per Share (EPS): Estimated at EUR 6.68, supported by steady demand for ASML’s EUV machines.
• Gross Margins: Expected at 49%–50%, slightly constrained due to the high costs associated with High-NA EUV systems.

For 2025, ASML has guided total net sales of EUR 30–35 billion, at the lower end of prior estimates, reflecting cautious optimism amid challenges such as export restrictions and market shifts.

DeepSeek’s Disruption: A Game Changer?

DeepSeek has emerged as a disruptive force with an AI model that achieves high performance using less advanced and cheaper hardware, challenging the assumption that AI advancements require increasingly sophisticated chips reliant on ASML’s lithography systems. As a result, ASML shares, like those of other AI-focused companies, have dropped sharply as investors reassess growth prospects for high-end chips.

DeepSeek’s success underscores China’s ability to innovate under constraints, raising concerns about the sustainability of Western dominance in chipmaking technology. Its rise also highlights China’s strategic advantages in IT talent, government support, and a vast domestic market, which could drive further breakthroughs in advanced chipmaking.

The development also casts doubt on the effectiveness of U.S. export controls intended to slow China’s technological progress. If these measures fail, ASML and its peers may face intensified competition and shifting market dynamics.

Positives: ASML’s Resilience and Opportunities

Despite recent disruptions, ASML has several strengths that underpin its long-term potential:

1. Monopoly on EUV Technology: ASML remains the sole supplier of EUV lithography machines, which are critical for producing next-generation chips used in AI, 5G, and high-performance computing.
2. Recurring Revenue Streams: The Installed Base Management business, including upgrades and maintenance, provides steady income, offering resilience against market volatility.
3. Geographic Expansion: While China’s share of revenue faces pressure from export restrictions, ASML is well-positioned to benefit from semiconductor investments in Europe and the U.S.

Challenges: DeepSeek and Geopolitics

However, the company faces significant hurdles:

1. DeepSeek’s Disruption: If AI models increasingly rely on cost-efficient chips, demand for the advanced semiconductors that drive ASML’s EUV sales may slow. Investors will want to hear management’s perspective on this shift.
2. Geopolitical Risks: U.S.-led export controls continue to limit ASML’s sales to China, one of its largest markets. China’s efforts to develop domestic lithography capabilities add further complexity.
3. Customer Dependency: ASML’s reliance on a few key customers, including TSMC, Samsung, and Intel, leaves it vulnerable to spending delays or cutbacks.

What to Watch During the Earnings Call

The earnings call will be pivotal for understanding ASML’s outlook. Key areas to monitor include:

• Management’s Strategy: How does ASML plan to address the risks posed by DeepSeek and shifting demand for advanced chips?
• Guidance for 2025: Investors will look for clarity on EUV bookings and whether deferred orders from major clients like Samsung are likely to materialise.
• Geopolitical Insights: Comments on export restrictions and their impact on ASML’s China operations will be critical for assessing long-term growth prospects.

Balanced Outlook: Navigating Risks and Opportunities