ASML Stock: What’s Behind the 6% Spike Despite DeepSeek Concerns?

• ASML stock was up 6% after posting strong Q4 results.
• The performance quelled concerns about a potential disruption caused by DeepSeek.
• The firm’s net bookings blew away estimates.

The Netherlands-based AI stock beat Q4 earnings and revenue estimates.

ASML (NASDAQ:) stock was on the move Wednesday after the firm reported strong fourth quarter earnings and a robust outlook.

The results quelled fears, at least for now, about the potential impact of Chinese company DeepSeek and its recently released AI technology.

The breakthrough DeepSeek open-source AI technology is said to rival OpenAI’s ChatGPT, as it is a reasoning model that is trained to “think” more deeply about a prompt. It is also much cheaper to develop than other models and uses far less energy.

It was released on January 10, but it exploded on the scene on Monday when it became the number one most downloaded free app in the Apple (NASDAQ:) app store.

ASML, along with chipmakers like NVIDIA (NASDAQ:) tanked as a result. ASML stock was down about 8% on Monday to $675, while NVIDIA dropped about 17%. The concern among investors is that this breakthrough model requires less computing power, thus, perhaps, less need for AI chips.

ASML is not a chipmaker, but it does produce the machines that allow for the creation of AI chips, so it is wholly connected to that universe.

But ASML stock bounced back on Wednesday, opening roughly 6% higher as the price surged back to $723 per share. Here’s why.

Record Revenue in Q4 and Fiscal 2024

ASML reported strong fourth quarter earnings on Wednesday and had a promising outlook that pleased investors.

The Dutch company beat revenue and earnings estimates in the quarter. ASML reported net sales of €9.3 billion, or USD$9.7 billion, a record for the firm. Revenue was 24% higher than it was in the previous quarter. It also topped estimates of €9.07 billion.

ASML President and CEO Christophe Fouquet said the sales gains were mostly fueled by revenue on two High NA EUV systems, along with additional upgrades.

Net income was €2.7 billion in the quarter, or USD$2.8 billion, a 29% quarter-over-quarter increase. The outcome was better than the €2.64 billion that analysts had expected. Earnings were €6.85 per share, of USD$7.14 per share, up 30% from €5.28 per share.

The company also improved its gross profit margin to 51.7%, up from 50.8% the previous quarter. The profit margin was above ASML’s previous guidance. Also, the firm more than doubled its cash to €12.8 billion, or USD$13.3 billion, from €5 billion the quarter before.

ASML also had a record year with €28.3 billion in net sales (USD$29.5B) in fiscal 2024, up from €27.6 in 2023 – a 3% increase.

Outlook Is Promising

While the earnings were solid, the main catalyst for the spike in the stock price on Wednesday was the outlook.

Net bookings, which include all authorized system sales orders, came in at €7.1 billion, or USD$7.4 billion, up 169% from the previous quarter. It blew away net bookings estimates of €3.3 billion. This metric is indicative of high demand for its machines and services. That was good news for investors.

The company also offered guidance for fiscal 2025, which was consistent with previous guidance. Investors likely took it as a good sign that the firm did not lower its guidance on the DeepSeek threat.

“We expect first-quarter total net sales between €7.5 billion and €8.0 billion, with a gross margin between 52% and 53%,” Fouquet said. “ASML expects R&D costs of around €1,140 million and SG&A costs of around €290 million. As we communicated last October, we expect total net sales for the year between €30 billion and €35 billion, with a gross margin between 51% and 53%.”

The net sales range would represent an increase of between 6% and 24%.

Fouquet said the wide range is consistent with management’s view that AI has created a shift in the market dynamics that is not benefiting all of its customers equally. That “creates both opportunities and risks as reflected in our 2025 revenue range,” the CEO said.

Analysts Are Bullish

Analysts that cover the stock are generally bullish on ASML. They have a median price target of $848 per share, which would be a 19% increase over the current price.

ASML stock also received some upgrades, including one from Bernstein, which boosted the target to $885 per share. That is some 24% higher than the current price.

“While overall a solid set of results, and that strong bookings number should give investors some reassurance on 2025, we believe there is still a lot to play out in AI demand as DeepSeek impact is better understood,” Bernstein analyst Sara Russo said in a research note, reported Investor’s Business Daily. “Longer term we remain bullish on the opportunity for ASML, but caution may prevail until we understand the more near-term implications.”

The stock is also trading at a reasonable valuation, with a P/E that’s down to 37 and a forward P/E of 27.

It remains to be seen how DeepSeek might disrupt the industry, but for now, the outlook for ASML looks good. However, the wide revenue range is worth monitoring.

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