Why ASML Is Falling Despite a Q1 Profit Beat

American depositary receipts (ADRs) of ASML Holding (ASML) fell in intraday trading Wednesday following the release of a first-quarter earnings report that beat income estimates but fell short of sales expectations.

The Dutch company manufactures equipment used in the construction of semiconductors, and supplies some of the largest semiconductor companies in the world like Samsung, Taiwan Semiconductor Manufacturing Company (TSM), and Intel (INTC).

ASML posted 5.29 billion euros ($5.63 billion) in total sales for the first quarter of 2024, below estimates compiled by Visible Alpha of EUR5.42 billion ($5.77 billion). Net income, however, surpassed expectations, with ASML reporting profit of EUR1.22 billion ($1.30 billion), or earnings per share (EPS) of EUR3.11 ($3.31), topping estimates of EUR1.11 billion ($1.18 billion), or EUR2.83 per share ($3.01).

Chief Executive Officer (CEO) Peter Wennink said the company still sees 2024 as a “transition year,” with plans to continue investing in increased production capacity and new technology. ASML affirmed its full-year outlook, having previously said it expected sales to be roughly flat this year compared to 2023, with the second half of the year projected to see improved sales figures.

Wednesday’s report did not mention the Netherlands’ limiting of certain exports to China, which ASML has previously cited as a factor that could limit future sales, projecting a 10% to 15% drop to deliveries there this year in its prior results.

ASML could be a beneficiary of the Biden administration’s CHIPS and Science Act, which has already been used to grant billions of dollars to Intel, Samsung, TSMC, and others with the goal of making the U.S. a dominant semiconductor manufacturing market. As construction progresses on the new facilities those companies are building across a number of states, ASML could see an uptick in demand.

Jefferies analysts said in a note following the earnings report that they agree with ASML and are comfortable with their current projections for full-year and beyond sales, maintaining a “buy” rating and calling ASML a “top pick.” The analysts said they see any weakness in the share price that results from the earnings report as an opportunity to buy into the stock before the higher sales numbers later this year boost the stock price again.

ADRs of ASML fell 6.8% as of 10:15 a.m. Wednesday to $910.49. The company has benefitted from the recent rally around semiconductor and other tech-related stocks, rising 27% so far this year and 42% in the last 12 months.