Is it a good time to buy semiconductors?

Dutch chipmaker ASML Holding experienced its biggest weekly drop since December 2002, plummeting 17% last week. This sharp drop came after it became known that the US Administration is studying new restrictions to exports of advanced chips to China.

These measures would even affect non-us companies What do they use technology made in the USAunder the foreign direct products rule.

American chipmakers have argued that these restrictions unfairly disadvantage them, while other countries continue with their activity usual, especially in the face of proximity of elections US presidential elections. The proposed restrictions are expected to significantly affect both ASML and Japan’s Tokyo Electron.

On July 17, ‘Bloomberg’ reported the news, triggering a drop of 11% in ASML shares, marking their worst single-day drop since March 18, 2020, when the global lockdown began. ASML’s market valuation plummeted from €400 billion to €326 billion, falling to third place among the largest European companiesbehind Louis Vuitton Moet Hennessy.

ASML released its second quarter financial results last week, with higher than expected profits and revenues. However, the possibility of a US tax increased restrictions to ASML’s chip exports to China triggered a wild stock selling that the positive results could not contain.

The impact may be manageable, according to Bank of America

In the light of the severe market reactions affecting Europe’s largest technology company, Bank of America analysts assessed the potential impact of these new restrictions on ASML’s operations. Equity analyst Didier Scemama noted: “The risk of servicing in China is manageable.”

The expert estimated that a ban on Equipment maintenance in China could reduce ASML’s revenue by 3% or less. If restrictions are limited to certain customers, the impact on income could be closer to 1%.

Given ASML’s revenues of €27 billion in 2023, Bank of America estimates that the impact potential for new restrictions could range between 270 and 770 million euros.

The investment bank highlighted ASML’s significant exposure to China, which accounts for 49% of its sales in the second quarterreflects the growth of Beijing’s investment in this sector. Bank of America does not expect a substantial reduction in this trend in the near future, despite current geopolitical tensions.

Bank of America expects revenues of 40 billion euros by 2025 and an EPS of €34.7, compared to previous estimates (€39.8 billion and €34.9 billion) and consensus estimates (€36.2 billion and €31.9 billion).

A strategic purchasing opportunity

Scemama reiterated that ASML is his “top pick” in the semiconductor sector, suggesting that the recent fall offers a strategic purchasing opportunity ahead of Capital Markets Day on November 14, when ASML is expected to raise its 2030 revenue targets.

Bank of America maintains a target price of 1,302 euros for ASML, indicating a 60% increase from ASML’s closing price on Friday, July 19. In short, while the reaction from the market to the news Although the potential export restrictions have been severe, ASML’s fundamental strengths suggest the sell-off may be overdone.

For investors evaluating ASML, the recent price drop could represent a compelling entry point, given the company’s strong financial results and pivotal role in the semiconductor industry.

ASML’s investment in research and development allows it to stay at the forefront of technological innovation. The company’s continued improvements in EUV technology and the development of lithographic machines New generation are essential to maintain its market leadership and drive future growth.

However, investors should take into account the geopolitical context broader and regulatory landscape, which could continue to introduce short-term volatility.