ASML (NASDAQ: ASML) And Applied materials (NASDAQ: AMAT) are two of the largest manufacturers of semiconductor equipment in the world. ASML is the world’s largest manufacturer of lithography systems, which are used to optically etch circuit patterns onto silicon wafers. It is the only supplier of high-quality extreme ultraviolet (EUV) lithography systems used to manufacture the world’s smallest, densest, and most energy-efficient chips.
Applied Materials offers a broader range of semiconductor manufacturing equipment, services and software for the foundry, logic and memory chip markets. It also sells production equipment for LCD and OLED screens. Both companies are considered the hub of the semiconductor sector.
But over the past three years, ASML shares fell 5%, while Applied Materials shares rose 15%. Let’s see why that happened, and whether Applied Materials continues to play the stronger semiconductor material than ASML.
ASML, based in the Netherlands, monopolizes an important link in the semiconductor market supply chain with its EUV systems. All leading foundries in the world, including Taiwanese semiconductor manufacturingSamsung, and Intel — must continue to buy ASML’s EUV systems to produce the world’s best chips.
These massive systems cost more than $150 million each and require multiple aircraft to ship. The next generation of high NA EUV systems, which are needed to produce even smaller chips, currently cost around $380 million. It took ASML decades to develop its EUV technology, so it won’t face any significant competitors in the near future.
Yet ASML’s growth is still accompanied by an ebb and flow in the cyclical semiconductor market. It is also highly exposed to the technology and trade war between the US and China, which has already banned it from selling its EUV systems and some of its older deep-ultraviolet (DUV) lithography systems to Chinese chipmakers. It still generated 26% of its revenue from mainland China in 2023.
ASML’s revenue increased by 33% in 2021, 14% in 2022 and another 30% in 2023. That growth was driven by robust new PC sales during the pandemic (2020-2021), the 5G upgrade cycle in the smartphone market and the growth of the AI market.
But for 2024, analysts expect sales to rise only 2% as the country grapples with tighter export restrictions against China and lags behind the AI market’s initial growth spurt. It is gradually shipping its first high-NA EUV systems, but its top customers won’t yet use that advanced technology to produce their latest chips at scale. Earnings per share are expected to decline by 4%.