To The Moon

ASML Earnings Preview: China, Intel, and Its Forecast

$ASML Holding NV(ASML)$  , the global leader in semiconductor lithography equipment, is set to report its third-quarter earnings before the market opens on October 15. Year-to-date, ASML's stock has outperformed the $PHLX Semiconductor Index (.SOX.US)$ , and major Wall Street firms like $Wells Fargo & Co (WFC.US)$ and $JPMorgan (JPM.US)$ have recently raised their price targets ahead of the report.

Option Market Signals

With ASML set to report its third-quarter earnings, the options market is flashing clear signals of heightened anticipation and investor anxiety. The sharp spike in Implied Volatility to 51.13%—notably above the Historical Volatility of 45.27%—underscores the market's expectation for a significant move. The 96% IV Percentile is particularly telling, indicating that options are currently trading at a premium seen only 4% of the time over the past year, as traders pay up for protection or speculative bets.

While the stock price has trended upward into the report, sentiment in the options pit is more cautious. A Put/Call Ratio of 1.09 suggests that investors are actively hedging against a potential post-earnings sell-off or positioning for downside risk. This defensive posture, combined with the rising open interest, paints a picture of a market that is not taking the earnings outcome for granted.

In short, the options data suggests traders are strapped in for a volatile session for ASML stock. The elevated premiums and cautious positioning reflect the high stakes associated with the upcoming report, as the market awaits fresh guidance from the semiconductor equipment giant.

Core Financial Indicators

~Q3 Revenue: Consensus expects €7.71 billion, a 3% year-over-year (YoY) increase and nearly flat quarter-over-quarter (QoQ). This is below the company's prior guidance cap of €7.9 billion (+6% YoY, +3% QoQ).

~Q3 Gross Margin: The consensus is 51.4%, up 0.6 percentage points YoY but down 1.3 percentage points QoQ. The prior guidance cap was 52% (+1.2 pts YoY, -1.7 pts QoQ).

~Q3 Operating Profit: The consensus anticipates €2.43 billion, a slight decrease YoY and a 9% decline QoQ. This compares to the prior guidance cap of €2.6 billion (+6% YoY, -3% QoQ).

~Q3 Net Income: The forecast is for €2.07 billion, a slight dip YoY and a 10% drop QoQ. The prior guidance cap was €2.2 billion (+4% YoY, -6% QoQ).

Three Things to Watch

1. Will Net Bookings Return to YoY Growth?

The market consensus for Q3 net bookings is €4.89 billion, representing a significant 86% YoY jump but a 12% QoQ decline.

ASML's bookings have been volatile and have missed expectations several times, reflecting seasonal fluctuations in the logic and memory markets. In recent quarters, memory-related bookings have lagged behind logic. However, on the last earnings call, management projected that the logic market would continue to grow in 2025, driven by the AI boom, while the memory market would see strong growth led by HBM and DDR5.

SK Hynix's September 3rd announcement that it has installed the memory industry's first High-NA EUV system (the EXE:5200B) at its M16 fab in Korea suggests that previous High-NA EUV customers have all been from the logic sector.

2. Who Will Fill the Revenue Gap from Mainland China Amidst Geopolitical Tensions?

While ASML's high-end EUV lithography systems are restricted from being sold to Mainland China, demand for its DUV systems from the region has surged in recent years. Revenue from Mainland China peaked at 49% of ASML's total in Q2/Q3 2024, far exceeding the historical average of 10-20%.

However, with the extension of export controls, this share is declining. Last quarter, ASML projected that revenue from Mainland China would account for about 25% in 2025. Filling the gap left by this decline is a pressing issue. Moreover, recent intervention by the Dutch government in the Nexperia acquisition, previously made by a Chinese entity, highlights growing geopolitical risks that warrant attention.

3. With Intel's 18A Progress, Will Full-Year Guidance Be Raised?

In its effort to catch up with $Taiwan Semiconductor (TSM.US)$ , $Intel (INTC.US)$ has invested heavily in lithography, becoming the first customer for High-NA EUV systems. For context, a Low-NA EUV system has an average selling price (ASP) of over €200 million, while a High-NA EUV system costs over €350 million. However, Intel's process technology advancements have faced setbacks, and management has been indecisive about its foundry business amid internal disagreements, leading to cost-cutting and reduced capital expenditures.

Recently, however, investments from corporations and the U.S. government have eased Intel's financial concerns. With recent breakthroughs in its 18A process, the market is becoming more optimistic about Intel's long-term capex. As a key customer for ASML, Intel's improved financial health is a positive sign.

Given that ASML's previous 2025 revenue guidance of €32.5 billion implies only 15% YoY growth—a stark contrast to the current booming semiconductor market—investors will be watching closely to see if management raises its full-year forecast.

Summary

Overall, due to its unique position in the supply chain, ASML's performance has often diverged significantly from that of its key downstream customer, TSMC.

The revenue contribution from ASML's EUV systems has not shown the same strong upward trend as TSMC's revenue from sub-7nm advanced processes. Looking back at the last 10 quarterly reports, ASML's stock has dropped sharply after eight of them. This time, the market will be looking for a more optimistic outlook to break the trend.

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