The market reaction raises questions about the AI bubble and when it could burst
Shares of Amsterdam-based ASML (NASDAQ:ASML), which provides machines used to manufacture the chips, tumbled 16.26% Tuesday and continued to slide Wednesday after the company released a disappointing 2025 sales outlook.
Furthermore, CEO Christophe Fouquet’s remarks signaled caution and may have prompted chatter among traders who fear that artificial intelligence (AI) technology stocks are due for a correction to the downside.
Indeed, Monday’s collapse of ASML stock was so startling that it seemingly had collateral damage, bringing bellwether NVIDIA (NASDAQ:NVDA) stock down 4.69% with no other obvious negative catalysts.
The lackluster outlook for ASML’s full-year sales could have implications reaching far beyond a single Dutch machinery maker.
Improvement in ASML’s top-line and bottom-line results
ASML’s total net sales grew from 6.243 billion euros in the second quarter of 2024 to 7.467 billion euros in the third quarter. Furthermore, Fouquet observed that this result came in above ASML’s guidance.
During the same time frame (from Q2 to Q3 of 2024), ASML’s gross profit increased from 3.212 billion euros to 3.793 euros, and the company’s net income improved from 1.578 billion euros to 2.077 euros. In addition, ASML’s EPS grew from 4.01 euros to 5.28 euros.
Fouquet assured that there will “continue to be strong developments and upside potential in” artificial intelligence (AI). However, given the two-day slide in ASML stock indicates concern from the market.
Cautionary remarks and disappointing outlook
According to the CEO, beyond AI, “other market segments are taking longer to recover”.
“It now appears the recovery is more gradual than previously expected,” he added. Moreover, Fouquet sees the recovery process continuing into 2025, “which is leading to customer cautiousness.”
Fouquet announced that ASML downward-revised its 2025 sales guidance range to 30 billion euros to 35 billion euros, “which is the lower half of the range that we provided at our 2022 Investor Day”.
The upper end of ASML’s 2025 sales guidance range had previously been 40 billion euros, so the downward revision is a significant one. This, along with Fouquet’s downbeat commentary, helps to explain the plunge in ASML stock.
AI disappointment contagion?
Since NVIDIA stock and other AI chip stocks slid along with ASML stock on Tuesday, investors might wonder whether this represents the bursting of the AI-tech bubble of the past couple of years. contagion?
However, the general sense of calm on Wall Street on Wednesday suggested that, for now, there’s no contagion or bubble bursting afoot. As Nick Rossolillo of Concinnus Financial explained, “There need to be limits to the expectations we investors put in any single company,” dispelling the idea of ASML being a bellwether stop for the AI sector.
