Will This Vital Semiconductor Company Make a Jaw-Dropping Comeback in 2025?

Although 2024 has been a successful year in the market, not every company has done so well. Perhaps even more surprising, a company vital to the semiconductor supply chain has had a poor 2024. However, I think it's ripe for a comeback in 2025.

ASML Holding (NASDAQ: ASML) may be one of the most important companies on Earth, and yet few know it exists or what it does. The stock is currently down around 5% for the year but was up as high as 45% in July. So why did investors sour on ASML? It all has to do with 2025 expectations.

ASML's machines are unrivaled

ASML makes a vital machine for manufacturing microscopic chips. It uses extreme ultraviolet (EUV) lithography. These machines lay the electrical traces on chips spaced as little as 3 nanometers (3 billionths of a meter) apart, although chip companies are working to make this space even closer. Without ASML's devices, our phones, laptops, or GPUs powering AI models wouldn't be as fast as they are today.

Furthermore, the company has no competition in this space. It's the only one that makes these devices, and nobody is close to replicating them. It would take billions of investment dollars and years of research to catch ASML, so it has practically secured itself as a legal technological monopoly. Anytime you have the chance to invest in one of these businesses, you should, as they are fairly rare in the marketplace.

However, ASML's monopoly has landed it on government radars -- just not for antitrust reasons. Western governments like the U.S. and the Netherlands (where ASML is based) do not want these devices to fall into the hands of China or its allies, so they have placed export bans on the most advanced machines and recently denied licenses to service some machines already in China.

As a result, sales to China are expected to fall. Furthermore, the Chinese economy isn't great right now, so the expansion of chipmaking capacity may also be on hold. This doesn't bode well for ASML since 47% of sales went to China in the third quarter. However, in 2025, management expects sales in that country to make up around 20% of total revenue, which they pointed out represents a more historically normal level of exposure.

Still, this effect caused management to reduce its 2025 revenue guidance range from 30 billion to 40 billion euros down to 30 billion to 35 billion euros. This caused investors to dump the stock, and it sold off 20% following the release of earnings.

While part of this sell-off was warranted, I think the depths of the drop represent a buying opportunity for investors, since this reaction was shortsighted.

ASML is poised to beat the market over the long term

Prior to the start of its decline, ASML was trading at a hefty 53 times forward earnings. ASML is a dominant business, but its valuation was likely high due to its growth rate. It needed to post perfect results to maintain its premium, but it didn't, thus the drop in stock price and valuation.

ASML PE ratio (forward), data by YCharts; PE = price to earnings.

However, its current price tag of 35 times forward earnings is more reasonable, although I wouldn't consider it cheap by any means. I think this is a great entry point for a company poised to perform well over the long term.

For 2030, management expects revenue to be 44 billion and 60 billion euros, representing an annual growth rate of 8% to 14%. Throw in a 1% dividend, stock buybacks, and margin expansion (which management predicts), and you have a recipe for a stock that can solidly beat the market.

ASML's comeback may not start right away in 2025, but I'm positive the stock should start responding as we move closer to 2026. I don't know when that turnaround will happen, so I'm positioning myself now to take advantage of the eventual move.

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Keithen Drury has positions in ASML. The Motley Fool has positions in and recommends ASML. The Motley Fool has a disclosure policy.