ASML Is the Chip-Equipment Leader. Its Stock Is Poised to Bounce Back. — Barrons.com

Dow Jones Newswires

By Jack Hough

The U.S. stock market wouldn't be riding so high without chip designer Nvidia, which is at the center of a flood of spending on artificial intelligence. Nvidia, in turn, is deeply dependent on Taiwan Semiconductor Manufacturing, which runs the world's most sophisticated chip factories. And Taiwan Semi would be lost in cutting-edge chips without a Dutch company called ASML Holding, the leader in lithography, or using lasers and mirrors to print impossibly dense patterns on silicon wafers.

All three companies have done wonders for investors over the past decade: Nvidia shares have returned 29,000%; Taiwan Semi's American depositary receipts, 1,100%; and ASML's ADRs (which trade under the ticker ASML), 800%. But Nvidia and Taiwan Semi are trading close to their highs. ASML, after slashing its revenue guidance in October, is down by nearly a third from its peak last summer.

Is this an early warning for chips, and by extension, the U.S. stock market? Or is ASML losing its monopoly hold on high-end lithography? Bet neither — and that ASML will bounce back.

For background, start with Roy G. Biv, the old grade-school anagram for the colors of the rainbow, from red to violet. Colors are determined by wavelengths, and these are the ones that human eyes are tuned to see, from 700 nanometers down to 380, but there are others. For example, beyond red is the infrared used by remote controls, and beyond that are broadcast signals, because long waves travel far. Old-fashioned television, and now cellphones, can use waves as long as meatball heroes, and AM radio waves can be the size of football fields.

In the other direction, past violet, are extremely small waves that are handy for passing through solids, like the ultraviolet used in tanning beds, and below 10 nm, the X-rays that can reveal broken bones. This is the neighborhood where ASML plays. Its current extreme ultraviolet, or EUV, machines can print 13-nm resolutions, which chip makers can turn into even smaller features to achieve their current 7-nm, 5-nm, and 3-nm "nodes," or generations. A nanometer is roughly how long a fingernail grows in a second; a human hair is 80,000 to 100,000 nanometers wide.

Transistor density tends to double every two years or so with a minimal increase in cost, making computers ever more powerful — a trend known as Moore's law, and kept alive today by ASML. Its room-size machines are the most complex thing humanity has ever created, says Didier Scemama, who has studied ASML for decades and covers it for BofA Securities. For example, they fire lasers at molten tin droplets falling at a rate of 40,000 to 50,000 a second — two hits per droplet, without a miss. A stray particle could ruin a wafer, or take down the machine.

That technology took decades to develop. The first EUV test chips were made at SUNY Albany in 2008. The first commercial product to use EUV-enabled chips was Samsung Electronics' family of Galaxy Note 10 smartphones in 2019. China, which is banned from buying ASML's most sophisticated machines, would surely like to make its own. "I think the odds of them being very successful in EUV over the course of the next 10, 15, 20 years are fairly low," says Scemama. Beyond complexity, there are ASML's supply deals with Germany's Carl Zeiss, which makes the world's flattest mirrors, and Trumpf, which makes the world's most powerful pulsed industrial lasers.

ASML's current top machines are estimated to cost more than $220 million. The next generation, called high numerical aperture, or NA EUV, can print 8-nm resolutions, supporting nodes starting at 2 nm. Intel is an early recipient. Broader uptake could start in a year or two, at prices estimated at $380 million to $400 million per machine. Apple, which first brought 3-nm chips to market in its top 2023 iPhone, could move to 2-nm production around next Christmas. It currently leads the miniaturization push; Nvidia is content to lag a nanometer or two behind, while differentiating its chips with software and other add-ons.

Back to our original question. Why is ASML slumping? Three reasons. First, China has rushed to stockpile lower-end ASML equipment ahead of what might be tighter trade restrictions starting soon. The shift back to lower demand from China will temporarily sap growth. Second, Intel made a bold push to expand in chip manufacturing, with little financial success so far. Intel and Samsung have delayed equipment orders for their foundries. Third, despite strong growth in AI, there is a slump in consumer devices and their chips. Two-thirds of the companies in the Philadelphia Semiconductor index have trailed behind the S&P 500 index over the past year.

A return to growth for ASML seems likely. Timing will depend on demand for phones, personal computers, cars, and gaming machines — as well as whether Intel and Samsung are able to lure Taiwan Semi customers to their foundries. One bear case is that lithography intensity is rising more slowly than in the past. Taiwan Semi's 5-nm node uses 10 to 12 EUV layers, and its 3-nm node, about 20. But with its 2-nm node, this is believed to rise to only 22 layers. On the other hand, older nodes will remain relevant for many years; the shift to high NA EUV is coming; and computer memory is following the same rising EUV demand path as processors, adding to growth.

BofA's Scemama reckons that earnings for ASML will grow at a compounded average of 16% a year over the next five years. Shares trade at 37 times this year's slashed earnings estimate — a premium, but one that is close to a 10-year low relative to U.S. chip-equipment companies, J.P. Morgan points out. My colleague Andrew Bary recently named ASML one of his top 10 stock picks for 2025. And Scemama's price target for the ADRs implies 26% upside.

Write to Jack Hough at jack.hough@barrons.com Follow him on X Subscribe to his Barron's Streetwise podcast

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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Japan's Leading and Coincident Indexes Decline in November

MT Newswires

Japan's leading economic indicators index, which gauges the outlook for the coming months using data such as job offers and consumer sentiment, fell to 107 in November from 109.1 in October, according to Cabinet Office data released Friday.

The index of coincident economic indicators, which includes factory output, employment, and retail sales, dipped to 115.3 from 116.8.

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EMEA Morning Briefing: Investors Await U.S. Jobs Data

Dow Jones Newswires

MARKET WRAPS

Watch For:

France industrial production index, household consumption; trading updates from J Sainsbury, Bang & Olufsen

Opening Call:

European stock futures were little changed but trading with a slightly negative bias early Friday. Asian stock benchmarks fell; the dollar gained and Treasury yields were mixed; oil and gold futures edged higher.

Equities:

Investor sentiment remains cautious as higher bond yields particularly in the U.S. and U.K. have sent uncomfortable reverberations through the stock market.

A big test for markets could come right after Trump's inauguration on Jan. 20. "What you could end up having is a period of time where you really get FOMO [fear of missing out] and deregulation where you could get the stock market rising with rising bond yields. That would be something where, the higher you would go, the more you would want to adjust risk exposure," said Julian Emanuel of Evercore ISI.

While equities are fractionally higher for the year, sentiments remain distinctly nervier, said Vishnu Varathan at Mizuho Securities, adding that markets are cautious as inflation risks re-emerge, with a swathe of Fed speakers warning against premature and excessive easing.

U.S. stock markets were closed Thursday to mark former President Jimmy Carter's memorial. The spotlight Friday is on the monthly employment report, which is expected to show the U.S. economy added around 155,000 jobs in December.

Forex:

The dollar gained ahead of the U.S. nonfarm payrolls report due out later today. The report is expected to show job additions slowed to 165,000 in December from 227,000 in November, as effects of one-off weather impact diminish, Maybank analysts said.

Figures in line with estimates may keep the USD Index around elevated levels. However, readings quite above or below expectations could lead to significant movements for the USD Index in either direction, the analysts added.

Deeply oversold conditions could slow the pace of further declines in the pound, UOB's Global Economics & Markets Research team said.

GBP broke below 1.2300 to as low as 1.2239 overnight, before recovering to settle at 1.2307.

"Downward momentum has slowed somewhat with the rebound," the team said. Instead of sliding further, GBP is more likely to trade in a 1.2240-1.2360 range. Risk remains on the downside, they said, pegging the next level to monitor at 1.2200.

Bonds:

Trading in the U.S. bond market ended early Thursday and the yield on the 10-year U.S. Treasury edged lower snapping a four-day run of gains.

The weekslong rise in yields has rippled through overseas markets, particularly the U.K., where a punishing selloff in government bonds initially extended into Thursday, before abating in choppy trading.

The increase in U.K. bond yields to levels not seen since 1998 will boost U.K. pension providers' solvency by increasing the discount applied to personal liabilities, BofA Securities said.

"This should be generally speaking quite favorable for pension schemes," it said.

However, BofA noted that the selloff has been more gradual than in October 2022, when the long-term bond yields rose. Market liquidity is much more normal nowadays and the daily moves are more modest, it added.

Energy:

Oil gained amid prospects for solid demand. Prolonged colder temperatures are expected to boost heating demand across the Northern Hemisphere if they persist, Citi Research analysts said.

Other factors seem to be more sentiment-driven, such as the risk of potentially stricter U.S. sanctions on Iran, which would limit oil supply, the analysts added.

Citi has revised its average Brent price forecast for the first quarter to $71/bbl from $65/bbl.

Metals:

Gold was higher and persistent concerns about geopolitical uncertainties could sustain demand for the haven asset.

"Gold has been performing impressively against the supposed headwinds of rising yields and dollar strength," and that performance is likely to continue, said, Brien Lundin, editor at Gold Newsletter.

Market focus is also on the coming U.S. nonfarm payrolls report, which could provide crucial insights into the Fed's rate path and potentially introduce additional volatility to gold prices, said George Pavel, general manager at naga.com Middle East.

Copper rose in Asia. The risk of further supply disruptions from aging copper mines remains a key concern in the longer run, UOB's Global Economics & Markets Research said.

However, the supply risk has been overtaken by more immediate concerns about the risk of a global trade contraction and manufacturing slowdown due to potential Trump 2.0 tariffs later this year, UOB said.

Iron-ore prices were higher in a likely technical recovery after losses in recent sessions. However, downside risks to demand remain given the potential for across-the-board U.S. tariffs, Goldman Sachs analysts said.

While the analysts had already forecasted a decline in Chinese steel demand amid the property sector downturn, slower global GDP growth under a universal tariff scenario would mean lower iron-ore demand outside China as well.

TODAY'S TOP HEADLINES

China's Central Bank Suspends Purchase of Treasury Bonds in Open Markets

China's central bank has hit pause on government bond purchases, a move that comes as long-term yields hit fresh lows amid expectations of more monetary policy easing.

The People's Bank of China cited excess demand for government bonds as the reason for its decision, saying the suspension was made effective this month. Buying will resume at an appropriate time, it said in a statement Friday.

Investors are on edge as Friday's jobs report could make or break the stock-market rally

Rising Treasury yields are ratcheting up the anxiety for equity investors. Thursday's stock-market closure offered only a brief reprieve from the mounting tension.

After a day off in honor of former President Jimmy Carter's national day of mourning, traders will return to their desks on Friday. It won't take long until they're forced to confront the first major U.S. economic report of 2025, as the December jobs data will be released at 8:30 a.m. - one hour before the opening bell.

Arab States Race Turkey for Influence in New Syria

Saudi Arabia and other Arab states are jockeying for influence with Syria's Islamist government, hoping to gain an advantage on rivals in the strategically positioned country despite misgivings about the jihadist past of its new leaders.

The kingdom, along with Jordan and Qatar, is rushing humanitarian aid and energy assistance to Syria's war-weary population. The Arab states are betting that doing so could advance both narrow and strategic goals-from cutting the flow of drugs and radical fighters across Syria's borders, to countering the influence of competitors such as Turkey and Iran.

Airbus Comes Slightly Short of Plane Delivery Target Amid Supply-Chain Bottlenecks

Airbus delivered fewer planes than expected last year as persisting supply-chain hurdles weighed on production.

The European plane maker said it dispatched 766 commercial aircraft to 86 customers last year, more than the 735 planes it delivered in 2023 but below company guidance of about 770 deliveries.

BlackRock Withdraws From Climate Coalition, Backpedaling Again on ESG

BlackRock is pulling out of a United Nations-sponsored climate initiative, a remarkable U-turn for a company that was once a poster child of the environmental, social and governance investing movement.

The world's largest asset manager told clients in a letter Thursday that it has formally withdrawn from the Net Zero Asset Managers initiative, an international group of asset managers committed to supporting the goal of net-zero greenhouse gas emissions by 2050.

Elon Musk's xAI Launches Stand-Alone Grok App

Elon Musk's artificial-intelligence startup, xAI, launched its first stand-alone consumer app, its latest step as the company tries to catch up with more established players such as OpenAI and Google in the generative AI race.

The app is called Grok, which is also the name of the AI language model developed by xAI. Users noticed the app in Apple's App Store early Thursday.

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Expected Major Events for Friday

00:01/UK: Dec Scottish Retail Sales Monitor

05:30/NED: Nov Manufacturing output

06:00/FIN: Nov Industrial Production

06:00/FIN: Nov Balance of Payments

06:45/SWI: Dec Unemployment

07:00/ROM: Nov Retail trade

07:00/ROM: Nov International trade

07:00/SWE: Nov New orders & deliveries in industry

07:00/SWE: Nov Industrial Production Index

07:00/DEN: Dec CPI

07:00/NOR: Dec CPI

07:00/TUR: Nov Employment / Unemployment

07:00/TUR: Nov Industrial Production Index

07:45/FRA: Nov Industrial production index

07:45/FRA: Nov Household consumption expenditure in manufactured goods

08:00/AUT: Nov Production Index

08:00/SPN: Nov Industrial Production

09:00/BUL: Nov Industrial Production

09:00/ITA: Nov Retail Sales

10:00/GRE: Nov Industrial Production Index

10:00/LUX: Nov Industrial Production

10:00/MLT: Nov Industrial Production Index

11:00/IRL: Nov Retail Sales Index

11:00/IRL: Dec Irish Live Register latest monthly figures

16:59/GER: Nov Balance of Payments

All times in GMT. Powered by Onclusive and Dow Jones.

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New Zealand Shares Fall Amid Declines in Financials, Telecoms — Market Talk

Dow Jones Newswires

New Zealand's S&P/NZX 50 closed 0.4% lower at 12895.98. The benchmark index is down 1.6% early in the new year, running on thin volumes and little stock-specific news during the Southern Hemisphere's summer holiday season. The index was weighed by losses in financial and telecom stocks in Friday's session. Westpac posted the biggest daily fall, shedding 2.1%. (rhiannon.hoyle@wsj.com; @RhiannonHoyle)

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New Zealand Shares Log 2nd Week of Losses

Trading Economics

New Zealand's benchmark S&P/NZX 50 index fell 0.4% to close at 12,896 on Friday, as traders remained cautious ahead of the release of the US jobs report later today that could influence the Federal Reserve’s interest rate trajectory.

The Fed’s December meeting minutes, released earlier in the week, signaled a more gradual pace of policy easing this year due to inflation risks and uncertainty under the incoming Trump administration.

Among large-cap stocks, significant losses were seen from Infratil (-1.5%), Ebos Group (-1.6%), and Spark NZ (-1.7%).

Other notable decliners included Chorus (-1%), Fletcher Building (-1.8%), and Summerset Group (-2.1%).

For the week, the benchmark index shed 1.3%, extending its losing streak to two consecutive weeks.

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Hong Kong Shares Set to End week on Downbeat Note

Trading Economics

Hong Kong's equities dropped 37 points or 0.2% to 19,205 in early trade on Friday, marking a fifth session of losses amid declines across most sectors such as financials, property, and consumers.

Vigilant traders assessed the Chinese central bank's decision to temporarily halt treasury bond purchases due to excess demand, with plans to resume based on market conditions.

For the week, the market is poised for a second straight decline, down over 2.5% so far.

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China Stocks Decline as PBOC Suspends Bond Purchases

Trading Economics

The Shanghai Composite fell 0.2% to around 3,200, while the Shenzhen Component dropped 0.2% to 9,955 on Friday, following the People’s Bank of China’s announcement that it will temporarily halt government bond purchases due to a shortage of supply.

This move is part of a broader effort to temper investor sentiment amid concerns over weak economic growth, which has weakened the currency and eroded investor confidence.

Meanwhile, data released earlier this week showed that consumer prices in China rose just 0.1% in December, the smallest increase in nine months, while producer prices continued to contract for the 27th consecutive month.

These figures underscore growing deflationary pressures in China, despite ongoing monetary and fiscal support measures.

Notable losses were seen in stocks such as Zhongji Innolight (-6.3%), Dawnking Information (-3.9%), and IEIT Systems (-2.7%).

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