Shares of Dutch semiconductor equipment giant ASML (NASDAQ:ASML) are rising on a new report from Reuters. Specifically, the report said that the U.S. might exempt ASML from restrictions on companies exporting high-end chips to China.
ASML stock is up more than 7% on the news as of this writing. Shares are trading at around $920 per share with a market capitalization of nearly $370 billion.
ASML and China
ASML has become the largest company making semiconductor production equipment. This is thanks to its mastery of the extreme ultraviolet (EUV) process needed to bring circuit lines within a few nanometers of each other. But as the tension over technology has grown between the U.S. and China, ASML has gotten caught in the middle. About half of the firm’s sales come from China.
The Reuters report reversed price action from July 17, when ASML fell on news that the U.S. might restrict exports from its allies to China under the foreign direct product rule. ASML stock traded at around $1,060 per share less than one month ago and hit a low of $856 on July 30. Shares are still up 28% so far in 2024.
In its second-quarter earnings report, ASML said it expected minimal growth in 2024, with that coming in the second half of the year. It reported sales of $6.7 billion and net income of $1.7 billion, which was up 29% year-over-year (YOY).
Analysts worried at the time that President Joe Biden’s administration’s export restrictions could close off the China market. Some called the outlook disappointing.
But if worries about China are overblown, the outlook changes. Demand for artificial intelligence (AI) chips should continue to exceed supply, and ASML equipment is necessary for their manufacture. One Barclays analyst recently raised his rating on ASML stock in line with the Reuters report.
Analysts at TipRanks remain optimistic about ASML stock, while traders on Stocktwits are mildly bullish.
What Happens Next?
If the Reuters report proves inaccurate, ASML stock could go right back down. But the long-term prospects for the company appear good. Investors are buying on weakness.
On the date of publication, Dana Blankenhorn did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
