Key Points
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ASML is one of the most important companies in the global semiconductor ecosystem, but its stock price performance has left a lot to be desired over the past three years.
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ASML’s accelerating growth could make the stock more attractive to a broader investor pool if it decides to undertake a stock split.
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ASML Holding (NASDAQ: ASML) is one of the most important companies in the semiconductor ecosystem, but its shares have underperformed the broader sector over the past three years.
The 189% jump in ASML stock during this period has been eclipsed by the 247% jump in the PHLX Semiconductor Sector index. Moreover, each share of ASML now trades at more than $1,600. This is the reason why I think ASML management could undertake a forward stock split to make the stock more attractive.
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Let’s look at the reasons why ASML could become the next tech company to go for a stock split.
A stock split could boost demand for ASML’s shares
A forward stock split is an ornamental move that simply increases a company’s outstanding share count while reducing the price per share. For instance, a 10-for-1 forward stock split can bring the price of each ASML share to just over $160.
Though this move won’t change the fundamentals or prospects of ASML, it is believed that a lower share price could increase retail demand for the company’s stock by making it accessible to a wider pool of investors. Given that ASML has been underperforming the broader semiconductor sector, a stock split could give the stock a much-needed boost.
However, many brokerages now allow investors to purchase fractional shares. So, if your brokerage offers the option to buy fractional shares, you can consider investing in ASML regardless of a stock split. That’s because the artificial intelligence (AI)-fueled demand for advanced chips is driving strong demand for ASML’s chipmaking equipment, leading to a significant acceleration in growth.
Here’s why ASML can jump higher irrespective of a stock split
ASML released its third-quarter results earlier this month. The company reported revenue of 11.66 billion euros, an impressive jump of 55% from the year-ago period. Notably, ASML’s revenue had dropped slightly year over year in the same quarter last year. However, a significant jump in the number of machines sold by the company last quarter led to a remarkable increase in revenue.
ASML sold 113 new lithography systems last quarter, up from 66 in the year-ago period. These lithography systems — specifically extreme ultraviolet (EUV) lithography machines — are used to print advanced chips deployed in AI data centers. The company expects 14.7 billion euros in revenue in the current quarter, implying a 51% increase over the prior-year period.
What’s more, ASML expects to increase its advanced chipmaking equipment capacity by 30% in 2027. It is considering a similar increase in 2028 and beyond. As it turns out, ASML’s customers are interested in placing orders for 2029 and even 2030, indicating that it can sustain the recent acceleration in growth.
Not surprisingly, ASML’s consensus earnings per share (EPS) estimates have moved higher.
Data by YCharts
Even better, analysts have become bullish about ASML’s long-term EPS growth prospects.
Data by YCharts
That’s why investors looking to add a top semiconductor stock to their portfolios can consider buying ASML before it steps on the gas as it trades at an attractive 27 times forward earnings right now, a discount to its five-year average forward earnings multiple of 33.
Should you buy stock in ASML right now?
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Harsh Chauhan 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.
