Tech Stocks on the Rise: Is ASML Next in Line for a Stock Split?
The technology sector has seen a surge in stock splits in recent years, with big names like Nvidia, Alphabet, Tesla, and Broadcom leading the charge. These companies believe that lowering their share prices will make their stocks more accessible to a wider range of investors. But what exactly does a stock split entail, and could ASML be the next company to take the plunge?
Understanding Stock Splits
A forward stock split, the most common type, doesn’t alter a company’s fundamentals or prospects. Instead, it increases the number of outstanding shares while reducing the price of each share. However, some theories suggest that splits can lead to increased demand, resulting in a share price boost.
ASML’s Performance
Shares of ASML, a Dutch semiconductor equipment maker, have underperformed the market over the past two years, gaining only 22% compared to the broader PHLX Semiconductor Sector index’s 94% increase. The company is set to release its fourth-quarter 2024 results on January 29, sparking speculation about a potential stock split.
A History of Stock Splits
ASML has split its stock four times since going public in 1995, with three of those being forward splits. The company’s last stock split came in 2007, when it executed an 8-for-9 reverse split to optimize its capital structure. Since then, ASML’s stock price has skyrocketed over 1,900%, making each share now trade at around $764.
Why a Stock Split Might Be Imminent
With many brokerages now allowing investors to buy fractional shares, a stock split might not be as crucial as it once was. However, ASML’s stock price has stagnated in recent months, and a split could be just what the company needs to revitalize investor interest.
Long-Term Growth Prospects
Despite recent setbacks, ASML’s management remains confident in the company’s long-term growth prospects, driven by catalysts like artificial intelligence (AI). At its 2024 investor day, management reaffirmed its 2030 revenue guidance of 44 billion euros to 60 billion euros, along with a forecast of a gross margin range of 56% to 60%.
AI: The Key to Future Growth
ASML believes that demand for its extreme ultraviolet (EUV) lithography systems, used to manufacture advanced chips, will remain robust between 2025 and 2030. According to Research and Markets, the EUV lithography market could generate annual revenue of $22.7 billion in 2029, up from an estimated $12.2 billion last year. ASML’s near-monopoly in this market positions it for significant revenue growth.
Earnings Growth on the Horizon
Analysts predict a 26% jump in earnings per share (EPS) in 2025, following an estimated 4% drop in 2024. With the stock trading at 31 times forward earnings, now might be a good time to buy, regardless of a potential stock split.
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