Are semiconductor stocks now good value?

Last October, an announcement by semiconductor equipment manufacturer ASML (US:ASML) shook the market. The Dutch company, which makes lithography machines, warned of a slower recovery and increased “customer cautiousness”, prompting a sell-off across the semiconductor industry.

ASML had to cut its outlook for next year after orders came in significantly below expectations. In the three months to October, net bookings dropped 53 per cent quarter on quarter to €2.6bn (£2.2bn). As a result, ASML said it expected 2025 net sales to be between €30bn and €35bn, down from previous analyst expectations of €36bn.   

Several factors were behind the downgrade. Demand from China is being restricted by government sanctions, while there has been a slower than expected recovery in consumer electronics, such as PCs and mobile phones. Artificial intelligence (AI) semiconductors get a lot of attention in the media, but basic consumer electronics chips drive the industry and still face very cyclical demand.