ASML's Bookings Surged, but the Stock Slumped. Is This a Golden Opportunity to Buy the Stock?

Share prices of ASML (NASDAQ: ASML) sank this week after it delivered its second-quarter report, even though its bookings surged in the period. The stock is still up about 25% year to date.

The Dutch semiconductor equipment manufacturer is currently in the midst of what it has described as a transition year as it introduces its newest technology, a high numerical aperture extreme ultraviolet lithography system, or High NA EUV for short.

The impact of those transition efforts could be seen in the company's Q2 results, as revenue fell nearly 10% year over year to 6.2 billion euros ($6.8 billion), but came in at the top of the company's guidance range of 5.8 billion euros ($6.3 billion) to 6.2 billion euros ($6.8 billion). Its equipment sales dropped 15% to 4.8 billion euros ($5.2 billion), while its service revenue rose nearly 14% year over year to 1.5 billion euros ($1.6 billion).

The company sold 89 new lithography systems and 11 used systems in Q2 compared to 107 new and six used systems in the prior-year period. In Q1, it sold 66 new lithography systems and four used systems.

The big news in the quarter, though, was a big jump in bookings -- new orders for which contracts have been signed, a metric that provides an indication of future growth. The company had 5.6 billion euros ($6.1 billion) in bookings for the quarter, up 55% from 3.6 billion euros ($3.9 billion) in Q1 and a 24% increase from the 4.5 billion euros ($4.9 billion) in bookings it had in Q2 2023. Management noted that 2.5 billion euros ($2.7 billion) of those bookings were for EUV machines. It ended the quarter with a backlog of 39 billion euros ($42.6 billion).

For the third quarter, management forecast sales of 6.7 billion euros ($7.3 billion) to 7.3 billion euros ($8.0 billion); in Q3 2023, it generated 6.7 billion euros in sales.

Image source: Getty Images

While the bookings number could have gotten investors excited, it was overshadowed by news that the U.S. is considering imposing more severe trade restrictions to crack down on companies that sell advanced semiconductor technology to China. Those restrictions would also apply to foreign companies such as ASML that use U.S. technology.

Nearly half of the systems ASML shipped in the first half of this year went to China, although none of those were its most advanced systems, and China now makes up only 20% of its order backlog.

Is this a buying opportunity?

ASML trades at a forward price-to-earnings multiple of about 44 based on 2024 estimates. However, it is set to significantly grow its EPS next year, so based on 2025 estimates, that multiple drops to only 28.

ASML PE Ratio (Forward) data by YCharts.

With the company not yet benefiting from the artificial intelligence (AI) chip boom and its new High NA EUV machines set to start shipping in much more substantial numbers next year, that valuation looks attractive. ASML is the only company that can provide High NA EUV technology, so as demand for cutting-edge chips continues to increase and manufacturers look to shrink chip sizes, it should see strong demand for these new systems.

The potential for further geopolitical tensions around China, and for tighter restrictions around selling chip technology to it, adds risk to the ASML story. However, ASML is not a China story, and its new technology is not expected to be sold into the country. Moreover, according to Reuters, its CFO recently said that if restrictions prevent it from shipping even its less-advanced machines to China, it would likely be able to find other buyers for the backlog of machines that Chinese companies have already ordered. As such, I think this recent sell-off in the stock looks like a good buying opportunity.

Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML. The Motley Fool has a disclosure policy .