 Hey everyone, this is Dan with a new episode of my ASML videos. The last time I posted a video on ASML was November 3rd of last year. I have not made another video on ASML in the last 8 months because the market has been trending down since the beginning of the year. The market rebounded a little bit in the last 3-4 weeks and the CHIPS Act that was signed by President Biden on August 9th also gave semiconductor stocks an extra boost. We see the price of ASML recovered more than 12% in the last 3 weeks. I believe at the current price of $545 a share, ASML is oversold and undervalued. In this video, I will show you my step-by-step fundamental and technical analysis of ASML. First, let's see how the price of ASML has been trending since the beginning of the year. As you can see, ASML underperformed compared to SPY and QQQ. ASML is down 31%, it also underperformed compared to the semiconductor EDF SMH which is down 25%. Yesterday, SPY which represents the movement of S&P 500 is down 11% and QQQ which represents the movement of NASDA 100 is down 19%. If you look at the one-month chart, we see a very different picture. ASML is up 9.4% and has performed better than the broad market and better than the SMH EDF. ASML rebounded with the broad market of course in the last 3-4 weeks and also got an extra boost from the CHIPS Act that was signed by President Biden on August 9th. I will talk more about the CHIPS Act in the next few minutes. What does ASML do? It is a company that develops and produces advanced semiconductor equipment systems. Their main products are the extreme ultraviolet lithography systems also called the EUV system and they also produce the deep ultraviolet lithography systems also called the DUV systems. ASML has the monopoly on the EUV market because their technologies are so much more advanced than their competitors. They also have a near monopoly on the DUV market with 88% of the market share. ASML's dominance in the EUV and DUV market has ensured a steady stream of profits and cash flow for the company. The second quarter earnings of ASML were posted on July 20th. Their revenues and EPS beat the endless estimates. Sales were solid in spite of the slowdown of the semiconductor industry. They have implemented this fast shipping process, which I will explain more in the next slide. Because of the delay in revenue recognition, the full year guidance has been cut from 20% growth to 10% growth for sales for 2022. The EUV systems are 49.6% of the sales yet today and the DUV systems are 55.5% of their sales. Net margin improved slightly from 25.8% to 26%. We have been experiencing supply chain issues in Q2. The supply chain issues are expected to extend into Q3. In other words, the constraint on ASML sales is not the lack of customer orders. It's because ASML cannot build the EUV and DUV machines fast enough to meet customer demands. Let's try to understand what they mean by fast shipping. ASML is now shipping its machines as soon as they leave the factory before the engineers have completed the final tests. In other words, more testing will be done at the customer sites. This will allow the customers to begin running semiconductor wafers sooner. The company said that they did not recognize revenues from the machine sales until the machines were fully qualified. Because of this delay in revenue recognition, ASML was able to recognize revenues for only 12 EUV machines in Q2 even though they shipped 14 of them. After the year 2022, ASML will ship 55 systems but will only recognize revenues for 40 of them. Because of the delay in revenue recognition, sales growth will only be 10% for 2022 as opposed to the initial guidance of 20%. In my opinion, if they are shipping the machine sooner, they should be able to recognize the revenue sooner and not later. I believe the real reason for delay in revenue recognition is that ASML management wants to do income smoothing, which is a fairly common practice among well-managed companies. I believe ASML management wants to defer some of the revenues from 2022 into the future because they see the possibility of a global economic slowdown within the next couple of years. Regardless, I still believe ASML is a good investment choice. I will explain that in the next few minutes. Let's look at a few charts showing the finances of ASML. First, let's look at sales. ASML is represented by the black line here. With the exception of a dip in 2015 and 2016, the sales of ASML have grown impressively in the last few years. Compared to the industry average, which is the blue line here, ASML's sales growth has been pretty steady from 2018 to today. We are able to avoid the sales dip in 2019 and 2020, which was experienced by the industry. That's one of the reasons why I believe ASML management is trying to do income smoothing in 2022 in order to avoid showing a dip in 2023 or 2024. The earnings per share has certainly been growing very steadily over the last few years. The debt to capital ratio is comparable to the industry average. The return on equity certainly has been shooting up because of their technology leadership in the EUV market, which has a high profit margin. Overall, we can see from these charts that ASML is a well-managed company, which has been generating revenues and profits very steadily in the last few years. If you like what you've seen so far, I'd like to suggest for you to click the like, subscribe and notification buttons that will enable you to receive notifications when I post my next video. It'll also encourage me to make more videos like this in the future. Thank you very much. Let's continue. We'll have a lot of interesting stuff to cover. To understand the near-term future of ASML, we have to be aware of the CHIPS Act that was signed into law on August 9, 2022. The CHIPS Act will provide $52.7 billion to incentivize the US semiconductor industry. It includes $39 billion in manufacturing incentives. Since ASML supplies the EUV and DUV machines that are needed for all the advanced semiconductor plants, ASML will definitely benefit from the CHIPS Act when semiconductor companies build new fat plants in the United States in the next few years. The European Union also passed their version of the CHIPS Act back in March, which will provide 15 billion euros to incentivize the building of fat plants in Europe. At the individual company level, Intel announced that they would invest $20 billion in the US to build fat plants in the next two to three years, and that they would invest $36 billion in Europe. Taiwan Semiconductor announced that they would be spending $100 billion in the next three years to build fat plants in Taiwan, US, and Japan. Samsung announced that they would invest $300 billion through 2030 to build fat plants in Korea and in the US, including investing $200 billion on 11 plants in Texas. These new plants by Intel, Taiwan Semiconductor, and Samsung will all be needing the EUV and DUV machines from ASML. With impressive profits and cash flow generated in the last few years, ASML management has been rewarding their shareholders by doing aggressive stock buybacks. In this chart, we can see that from 2017 to 2021, the company has bought back the equivalent of 7.5% of their total market cap. This is a table from the ASML's second quarter financial report. We can see that the EUV machines between 2021 and 2022 went from 40.4% of the total sales to 39.6%, which is basically unchanged. The EUV machines make up more than 50% of the total sales. Some analysts have been voicing concerns about the geopolitical risk of ASML as related to the US potentially banning the sales of DUV machines to China. The US already banned the sales of EUV machines to China since late 2020. Another geopolitical concern is the possibility of war between China and Taiwan. Taiwan semiconductor is the biggest customer of ASML and almost all of Taiwan's semiconductor fab plants are located in Taiwan. From this chart, we see that China is only about 15% to 16% of the sales of ASML in 2021 and 2022. If the sales to China becomes zero because of the existing and future bans on EUV and DUV equipment, then the percentage here will become zero, which will be the immediate impact to the revenues. However, if there is indeed a total ban on China, the other countries will most likely start building more fab plants to backfill the void, which will actually generate even more businesses for ASML. With regard to Taiwan, indeed Taiwan makes up 31-34% of the ASML total sales. If there is a war in Taiwan, the production of semiconductors in Taiwan will be disrupted, which will cause considerable disruption to the worldwide semiconductor supply chain, especially related to the most advanced 7-5 nanometer chips. I've shown in one of the slides a couple minutes ago that Taiwan semiconductor is in the process of building a large fab plant in the United States, which will certainly have the EUV and DUV machines from ASML. If the production of semiconductors in Taiwan were disrupted, I'm pretty sure Taiwan semiconductor will be sending many of their engineers to the United States and to the rest of the world, and that they will be building even more fab plants to backfill the void. That means there will be more businesses for ASML if there is a war in Taiwan. I'm therefore not worried about these so-called geopolitical risks related to ASML. The 5 nanometer chips are the most technologically advanced chips that are mass produced in the world today. This is a list of all the 5 nanometer chips. They are all made by the EUV machines from ASML. DUV machines provided by ASML and other companies are not capable of making chips that are 5 nanometer or smaller. P-E-Z-Y is a Japanese company that specializes in providing chips for supercomputers. Apple, as you know, is a very successful cell phone company with some of the most advanced and most expensive cell phones in the world. AMD excels in producing processors for PCs, data centers, and supercomputers. Mediatek makes their high-end cell phones with the 5 nanometer chips. NVIDIA uses 5 nanometer technology to make the fastest graphic processors in the world. These processors are used for computer graphics, artificial intelligence, and cryptocurrency mining. Samsung uses their 5 nanometer chips for their high-end cell phones. Qualcomm uses their 5 nanometer chips for cell phones and for gaming. High-silicon is a subsidiary of Huawei because of the US ban on Huawei, the 5 nanometer high-silicon chips are no longer in production. The next generation of chips after 5 nanometer will be the 4 nanometer chips and the 3 nanometer chips they will all need to be produced by the ASML EUV machines. Because the dimensions of the chips get smaller from 7 to 5 to 4 to 3 nanometers, the processors become faster, the power consumption is reduced, and the heat generation is also reduced. For companies that want to make very competitive cell phones, PCs, data center processors, gaming devices, and processors for 3D graphics and artificial intelligence, they will always want to get the fastest processors with the least amount of power consumption and heat generation. I see therefore the never-ending demands for more and more advanced processors which will lead to more and more demands for the ASML EUV machines in the next few years. Now if the world economy will be slowing down substantially in the next year or so, I believe the segment of the industry that will be most impacted will be the lower end of the semiconductor industry that supplies the automotive and home-applying segments. The segment that covers the leading edge technologies, which is supplied by ASML, will most likely remain to be very strong, especially when the wealthiest nations in the world consider having fat plants located within their geographic boundaries to be a national security issue. These wealthy nations will be subsidizing the building of fat plants in the next two to three years regardless of whether there is a recession or not. These are the reasons why I am so bullish on ASML. Let's look at the valuation of ASML. First, I look at the PE ratios and PEC ratios of the leading semiconductor companies. Currently ASML has a trailing PE ratio of 39, which is on the high side, but I believe their solid growth in recent years justifies this high PE ratio. The five-year expected PEC ratio is at 1.24, which is pretty good. To calculate the stock price of ASML, I have used several assumptions. First, I assume the PE ratio to be 38, which is in line with the current PE ratio of 39. I assume a very conservative annual earnings growth of 10%, which is the same as the revised revenue projection by ASML management for 2022. Oh by the way, in Yahoo Finance, the average analyst's estimate for annual earnings growth is 29.8%. Historically, in the last five years, ASML earnings have been growing at a rate of 25.5%. Therefore, my 10% growth rate assumption is conservative. Based on the 2021 net income and the above assumptions, I extrapolated the net income, market caps, and stock prices for 2022 through 2026. With this range of numbers for stock price, I came to the conclusion that we can safely expect ASML to go up to $650 a share by the end of August 20, 2023, which is a year from now. Let's look at the other analyst's opinions. The last time when I posted my ASML video was on November 3, 2021. At the time, ASML was at $830 a share. Today, it's at $545.26 a share, because the broad market has gone down since the beginning of the year. My target back in November last year was $910 by the end of February of this year, since then I've been lowering my target and I've sold some of my ASML shares when the price fell below key support levels. Based on my calculations today, I have set the price target of $650 to be reached by August 20, 2023. Louis Nivellier's rating changed from an overall B rating to a D rating, primarily because the year-to-day decline of stock price for ASML. The fundamental rating is still C. TIP ranks upgraded ASML from moderate buy to strong buy, which is a sign that the stock has been oversold recently. The high target was revised from $979 to $794, because of the market downturn year-to-day, the price targets for most stocks have been lowered by the professional analyst and ASML is no exception. The average price target has been revised from $881 to $661, and a low target from $720 to $590. CNN Money maintains their buy rating. The high target was revised from $1030 to $794, median target lower from $966 to $600, and a low target revised from $779 to $472. The Street.com changed the overall rating from buy B to buy B-. The target has been lowered from $1067 to $649. I first bought ASML shares on November 30, 2020. I still have those shares, which are showing a 25% paper gain. I bought more shares on March 29, 2022 at $712.30 a share. When the price fell below a key support level, I sold the shares at a loss at $614.20. The current price of ASML is $545.26, which is lower than my sales price on April 8. In the next few days, when the technical indicators turn a little bit more bullish, I will very likely buy more shares. If I did that, I would definitely notify my Twitter subscribers immediately. What are my strategies? As I mentioned, I bought ASML shares back on November 30, 2020. I'm holding those shares for the long term. I've also been swing trading ASML shares in the last few months. In general, I will buy ASML shares when it bounces from a key support level or when positive news develops. I will sell shares when the price drops below a key resistance level or when adverse news develops. I will tweet my subscribers when I buy or sell ASML shares or when major news develops related to ASML. Now let's look into the price charts for ASML in more detail and talk about the support and resistance levels. On the charts that we'll be looking at, I have also drawn the 50, 100, 150, and 200 period exponential moving averages with dashed lines in these colors. For ASML, I'm showing three charts here. The left one is the hourly chart, the middle one is the daily chart, and the right one is the weekly chart. For each chart, I'm also showing the volume, the DMI indicator, MACD indicator. I'm also showing the Bollinger Bands. As I mentioned earlier, I'm showing the 50 period, 100 period, 150 period, and 200 period exponential moving averages with these dashed lines. If you look at the hourly chart, the RSI value is pretty low. That means it's likely that the price might get a little rebound in the next few trading hours. Then if you look at the daily chart, it dropped below the middle of the Bollinger Bands as of last Friday. Now, it might continue to go down and hit the lower Bollinger Bands and get supported there. If it starts rebounding at the lower Bollinger Bands, I might be buying more shares. If I do that, I'll be informing my Twitter subscribers about my trades. Let's look at the support and resistance levels. The next level support would definitely be around 530, which is the lower Bollinger Bands. Below that, the next level support will be around 515 here for gap kosher. The next level down will be here, 456, and then this historical bottom, 430, and then below that would be this historical bottom of 412. For resistance levels, the next level up will definitely be 564. That's the middle of Bollinger Bands, and that would be a strong resistance. If the price can get above the middle of the Bollinger Bands and stay above that for a couple of days, then the middle of the Bollinger Bands will most likely turn into a support level. Then beyond that, the next level of resistance would be here, 578, and then the short term peak of 590, and then of course the next resistance level will be upper Bollinger Bands at 595. Beyond that, we have to go back a little more to the left. On the price chart, the next level of resistance will be here for this gap kosher, 608. At this point, I'd like to remind you to subscribe to my Twitter account, which is DanMarketL, in addition to subscribing to my YouTube channel. Thank you very much for watching all the way to here. I'd like to remind you to click the like, subscribe, and notification buttons. As usual, I would very much welcome your comments, questions, and suggestions. I want to mention here again my price forecast for ASML, which is $650 a share to be reached before August 20, 2023. At the current price of $545, that means there's at least 19% upward potential in the next 12 months. I'd like to remind you that I'm not a financial advisor. I share my stock trading strategies and analyses for educational and entertainment purposes only. If you want to buy or sell stocks, you should make your own decisions, and you should definitely consult with your financial advisors before you do so. This wraps up my video for now. I will chat with you again in the next few days. In the meanwhile, I'd like to wish you the very best of luck with your financial investments.