While most AI stocks gained in October, ASML (NASDAQ: ASML) got tripped up following a disappointing third-quarter earnings report and a weak guidance update for 2025.
The news threw cold water on a stock that many have expected to be a winner in the AI boom as orders in the quarter were weak, and demand from China has been underwhelming. According to S&P Global Market Intelligence, the stock finished the month down 17%.
ASML data by YCharts
ASML runs into headwinds
ASML underwhelmed investors in almost every category in the third quarter.
The company reported revenue of 7.47 billion euros, which was up 12% as it returned to revenue growth after an earlier cyclical decline. On the bottom line, earnings per share improved from 4.81 euros to 5.28 euros.
However, what really threw investors off were the forward-looking indicators. New bookings in the quarter came in at just $2.6 billion, showing weakening demand as bookings correlate with revenue in the coming quarters.
That was just half of what analysts expected, reflecting weakness in China and a slower recovery in the investment cycle than expected. Because of ASML's position as the leading lithography equipment seller and the only maker of extreme ultraviolet lithography equipment, it's seen as a bellwether for the chip industry.
CEO Christophe Fouquet said, "It now appears the recovery is more gradual than previously expected. This is expected to continue in 2025, which is leading to customer cautiousness."
Because of the slowdown in orders, management also cut its guidance for 2025 from a forecast back in 2022. It called for revenue of 30 billion to 40 billion euros back then but now sees revenue coming at the bottom half of that range at 30 billion to 35 billion. Management also noted the "delayed timing of EUV demand," as it sees a gross margin of 51% to 53%, which was below its earlier range.
ASML also surprised investors with results as it released them a day early, which it blamed on a technical error.
Image source: Getty Images.
What's next for ASML
The update from ASML seems like more of a temporary setback than a permanent slowdown, as management said it saw some orders being pushed out into 2026. It also said that AI-related demand was strong and presented upside potential.
With tens of billions of dollars flowing into chip manufacturing through the CHIPS Act and organic growth, ASML is likely to benefit eventually, though the slowdown in orders is disappointing. Still, investors can take advantage of the sell-off and its future growth by buying the stock today.
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