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Does ASML's November Rally Have Staying Power?

Does ASMLs November Rally Have Staying Power?Share buybacks, capacity expansion, acquisition plans, and semiconductor trade skirmishes all factor into the recent uptrend in Netherlands-based chip gear maker ASML (NASDAQ: ASML)

Shares soared 17.82% in the past week and 52.41% in the past month, and are currently trading 24% above their 50-day moving average. 

The uptrend began in October, on the heels of ASML’s better-than-expected third-quarter results. After that report, several analysts upgraded the stock or boosted their price targets, as you can see using MarketBeat analyst data

The consensus price target is now $797.29, a potential upside of 38.25%. Positive news was cited as a catalyst for the price target increase.  Analysts’ consensus rating on the stock is “buy,” but that should not be taken as a recommendation. It’s always important to evaluate any stock within the parameters of your risk tolerance, existing holdings, and financial goals.

That said, ASML is showing unusual strength. Other large chip gear makers, such as Applied Materials (NASDAQ: AMAT) and Lam Research (NASDAQ: LRCX) also rallied recently, but have trended lower in the past week, while ASML has maintained its gains.

Rally’s Pace Picked Up 

ASML’s rally gathered steam on November 10, when the stock gapped up 14.57% in more than double the average turnover. The company held an investors' day, at which it announced several initiatives and updates, including:

  • Despite an uncertain macro environment, the company expects longer-term demand and capacity to show healthy growth.
  • It expects industry developments and innovation to drive growth across semiconductor markets.
  • The company plans to boost its capacity to meet future demand.

CEO Peter Wennink said that even if China sales were excluded, that would not affect the company’s growth forecasts. His comments addressed concerns about U.S. restrictions on chip manufacturing gear to China. 

ASML also instituted a new share buyback program valued at around $12.2 billion, set to run through December 2025. 

ASML is part of the chip-equipment-gear industry. It manufactures extreme ultraviolet lithography systems, which it sells to semiconductor makers. It has carved out a niche in that category, giving it a dominant place in the wider semiconductor business. 

The company’s sales and earnings dipped in 2022, as chipmakers cut plans for capital spending. For the full year, Wall Street is eying net income of $14.14 per share, a decrease of 13%. However, that’s seen rising by 34% next year, to $18.92 per share. 

Coming In Ahead Of Views

MarketBeat earnings data for ASML show that the company has topped earnings views in each of the past eight quarters. 

Recent price action has been encouraging, although the stock has been underperforming the broad market in the past 12 months. A weekly chart gives the clearest indication of the company’s long downtrend, and where it’s currently trading, relative to its late 2021 highs. 

Shares retreated to a two-and-a-half-year low in October, shortly before the earnings release set the tone for a fresh rally. The stock has ticked higher, and is now back at its May 2022 level. 

ASML has characteristics of a growth stock, even in the current market downturn. For example, its price-to-earnings ratio is 39, which could be considered high. 

It’s true that it has a lot of ground to make up before regaining its September 2021 high of $895.93, but with this month’s price action, shares cleared a shorter-term consolidation that began in August. ASML is now trading above several key moving averages. In a potentially encouraging sign, the shorter-term averages are turning higher as the longer-term 200 day line turns lower. 

That’s a positive trend, and the stock may be headed for a bullish crossover in the next several session, as the 50-day line rises above the 200-day. That could be an indication that the current uptrend has enough momentum to lift the stock even higher, as analysts expect. 
Does ASMLs November Rally Have Staying Power?

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