Nvidia might be stealing the spotlight, but ASML is the hidden powerhouse fueling the AI revolution! 🚀

With Nvidia set to report earnings next week, ASML could see a stock price increase if Nvidia exceeds expectations. ASML produces extreme ultraviolet lithography (EUV) machines, essential for manufacturing Nvidia’s chips. These machines, which use short-wavelength ultraviolet light to etch intricate designs onto silicon wafers, are critical to the chip-making process. ASML holds a monopoly on this technology, and it would take competitors decades and billions of dollars to replicate their position. Their latest machine, the High Numerical Aperture (High NA) EUV, represents a significant advancement, enabling the creation of smaller, denser chips with more transistors, which enhance processing speed and efficiency. As demand for AI chips rises, ASML stands to gain significantly, with its stock already up 30% year-to-date despite a downturn in tech stocks.

The Crucial Role of ASML’s Lithography Machines

ASML stands alone as the only company in the world capable of producing extreme ultraviolet (EUV) lithography machines. These colossal machines are essential for creating the complex, tiny chip designs that power today’s most advanced technologies, including Nvidia’s high-performance AI chips. The process involves using extreme ultraviolet light to etch intricate patterns onto silicon wafers, forming the foundation of microchips.

A Complex Web of Global Collaboration

Each EUV machine is an engineering marvel, comprising over 100,000 individual parts. Interestingly, ASML only manufactures about 10% of these components. The remaining 90% are sourced from hundreds of specialized suppliers worldwide, making ASML the ultimate systems integrator. This global collaboration allows ASML to leverage the expertise of its suppliers, avoiding the pitfalls of trying to master every single part of these incredibly complex machines.

The creation of EUV light itself is a spectacle of cutting-edge science. It involves generating light through tiny explosions of molten tin, occurring at an astonishing rate of 50,000 times per second within each machine. This light is then directed by mirrors, manufactured by Zeiss, which are the flattest surfaces on Earth. To illustrate their precision, if one of these mirrors were expanded to the size of the United States, the largest imperfection would be no bigger than a speck of dust. This is just one example of the meticulous craftsmanship that goes into ASML’s machines.

The Incredibly High Stakes of ASML’s Monopoly

ASML’s reliance on such a vast network of suppliers is both a strategic advantage and a necessary risk mitigation strategy. If ASML attempted to produce every component in-house, the failure of a single part could compromise the entire $200 million machine. By working with specialized suppliers, ASML minimizes these risks and maintains its dominant position in the market.

The company’s monopoly on EUV lithography machines is so formidable that experts suggest it could take decades and billions of dollars for any competitor to even come close to challenging ASML’s market dominance. This monopoly is not just a competitive advantage; it is arguably the most significant moat in the entire AI hardware market.

Insights

1. ASML’s monopoly on EUV technology creates a significant competitive moat.
2. The High NA EUV machine is crucial for advancing AI chip performance.
3. ASML’s stock could benefit from Nvidia’s earnings success.

Essence (80/20)

The core of this analysis is the symbiotic relationship between Nvidia and ASML, where Nvidia’s success directly influences ASML’s prospects. ASML’s monopoly on EUV lithography machines is critical for advancing AI chip technology, and their latest High NA EUV machine represents a leap in chip manufacturing capabilities. This positions ASML for significant gains as AI chip demand grows.

The Guerilla Stock Trading Action Plan:

• Monitor Nvidia’s earnings report closely; a beat on EPS and revenue could indicate a buying opportunity for ASML.
• Consider long-term investment in ASML, given its monopoly on critical AI chip-making technology.
• Stay informed on developments in ASML’s High NA EUV platform as it could further strengthen their market position.

Blind Spot:

Supply chain risks: ASML relies on a vast network of suppliers for 90% of its machine parts. Disruptions in this network could affect their production capabilities and profitability.

ASML Technical Analysis (daily)

This chart of ASML Holdings (ASML) on a daily time frame shows several key technical indicators and price action that provide insight into potential future trends.

Price Action and Moving Averages:
The stock price is currently trading between the 50-day moving average (976.16) and the 200-day moving average (897.20). The 50-day moving average is above the 200-day moving average, which is generally a bullish sign, but the recent price action suggests some weakness as the price has recently moved below the 50-day moving average. The price is testing support near the 200-day moving average and the red trendline around 900, which could act as a critical support level. The resistance level appears to be around 1,000, just below the 50-day moving average, where the price has previously faced selling pressure.

Volume:
Volume is relatively low, indicating a lack of strong buying or selling conviction. The recent price recovery lacks the support of increasing volume, which is typically necessary to confirm a strong uptrend.

Relative Strength IndexIn the world of technical analysis, the Relative Strength Index (RSI) stands as a cornerstone tool for traders seeking insights into market momentum. Developed by J. Welles Wilder ... More (RSI):
The RSI is currently at 49.03, which is neutral and does not indicate overbought or oversold conditions. This suggests that the stock could move in either direction, depending on other factors.

On-Balance VolumeThe On Balance Volume indicator (OBV) is a technical analysis tool used to measure the flow of money into and out of a security over a specified period of time. It is a cumulative ... More (OBV):
The OBV line has been declining, indicating that volume on down days is stronger than on up days. This is a bearish sign and suggests that selling pressure might be outweighing buying pressure, even though the price is relatively stable.

Stochastic RSIIn the realm of technical analysis, the Stochastic RSI (StochRSI) emerges as a powerful tool for traders seeking to navigate market dynamics with precision. Developed by Tushar S. ... More:
The Stochastic RSI is at 0.720, which is near the upper range but not yet in the overbought territory. This indicates that while there might be some upward momentum, it is not yet at an extreme level. However, if it moves higher, it could signal that the stock is becoming overbought.

Chaikin OscillatorNamed after its creator Marc Chaikin, the Chaikin Oscillator stands as a formidable tool in the arsenal of technical analysts. This oscillator is designed to measure the accumulati... More:
The Chaikin Oscillator is at 152,994, indicating accumulation as the value is positive. However, this alone isn’t strongly conclusive without further context, but it does suggest some underlying buying pressure.

MACDThe MACD indicator is essentially a momentum indicator that shows the relationship between two different moving averages of price. The MACD is the difference between the 12-period ... More Oscillator:
The MACD line (38.49) is above the signal line (13.51), and the histogram is positive, suggesting bullish momentum. The MACD has recently crossed above the signal line, which is typically a bullish signal, indicating that upward momentum might continue in the short term.

Support and Resistance Levels:
Support: Around 900, near the 200-day moving average.
Resistance: Around 1,000, just below the 50-day moving average.

Future Trends:
The mixed signals from different indicators suggest that the stock is at a critical juncture. The upward momentum indicated by the MACD and the proximity of price to the 200-day moving average support level suggest the potential for a bounce. However, the lack of volume and declining OBV are concerns that indicate underlying weakness. If the price fails to hold above the 200-day moving average, it could lead to further declines. Conversely, if it breaks above the 50-day moving average with strong volume, it could signal the start of a new uptrend.

Time-Frame Signals:

12 Months: Buy, if the stock can break above the 50-day moving average with strong volume, indicating a potential long-term uptrend.

3 Months: Hold, as the stock is near key support and could bounce, but watch for volume confirmation.

6 Months: Hold, as indicators are mixed and the stock is in a consolidation phase.

ASML Technical Analysis (weekly)

This weekly chart of ASML Holdings (ASML) provides several important technical insights that help in assessing long-term trends.

Price Action and Fibonacci RetracementFibonacci retracement is a fundamental tool in the arsenal of technical analysts and traders. Rooted in the mathematical principles of the Fibonacci sequence, this technique is wid... More:
The chart shows ASML’s price action, with Fibonacci retracement levels applied from the low of 563.63 to the high of 1,106.84. The stock recently pulled back to the 61.8% retracement level (771.14) and then rebounded. This level acted as strong support. The price is currently trading near the 38.2% retracement level (899.33), which is acting as a support zone. The stock is also trading between the 150-week moving average (743.46) and the 40-week exponential moving average (924.66). The 40-week EMA is providing resistance, while the 150-week moving average is acting as strong support.

Volume:
The weekly volume of 1.02 million is relatively low, indicating subdued trading activity. The lack of significant volume on the recent bounce from the 61.8% retracement level suggests a lack of strong buying conviction.

On-Balance Volume (OBV):
The OBV line, currently at 50.73 million, has been in an uptrend since mid-2023, indicating accumulation. This is a positive signal, suggesting that despite the recent price correction, the underlying demand for the stock remains intact over the longer term.

Support and Resistance Levels:
Support: Key support is at 899.33 (38.2% Fibonacci retracement) and 771.14 (61.8% Fibonacci retracement).
Resistance: Resistance is near the 40-week EMA at 924.66 and the recent high of around 1,000, just below the 23.6% Fibonacci retracement level.

Future Trends:
The weekly chart indicates that ASML Holdings is in a consolidation phase, with strong support at the 61.8% Fibonacci retracement level and resistance near the 40-week EMA. The upward trend in OBV suggests ongoing accumulation, which is a bullish sign. However, the lack of volume on the recent bounce is concerning and could indicate that the stock may struggle to break through the 40-week EMA. A sustained break above the 40-week EMA, confirmed by increased volume, could signal the resumption of the long-term uptrend. On the other hand, a fall below the 61.8% Fibonacci retracement level could lead to further downside.

Time-Frame Signals:

• 1 Year: Hold, as the stock is in a consolidation phase and needs to decisively break above the 40-week EMA for a clearer direction.
• 2 Years: Buy, if the stock can maintain above the 38.2% Fibonacci retracement and break above the 40-week EMA, signaling a potential continuation of the long-term uptrend.
• 3 Years: Buy, especially if the stock continues to respect the 61.8% Fibonacci retracement level as support and shows signs of sustained accumulation, as indicated by the OBV trend.

Past performance is not an indication of future results, and this analysis should not be considered as investment advice. Always conduct your own research and consider consulting with a financial advisor before making any investment decisions. 🧡

The Future of Chip Manufacturing: The High NA EUV Lithography Machine

Looking to the future, ASML is on the brink of another technological leap with its next-generation machine, the High Numerical Aperture (High NA) Extreme Ultraviolet (EUV) lithography platform, known as the EXE platform. This breakthrough technology will enable the production of even smaller transistors and denser chips, which are crucial for meeting the growing demand for more powerful and energy-efficient AI chips.

The High NA EUV lithography machine can etch lines up to 1.7 times thinner than its predecessors, allowing for up to 2.9 times more transistors per chip. This increase in transistor density translates to higher processing speeds, greater memory capacity, and improved energy efficiency—key attributes in the race to develop more advanced AI technologies.

ASML’s Promising Future in the AI Revolution

Given ASML’s exclusive position in the market and the increasing demand for AI chips, the company is poised to benefit significantly from the ongoing advancements in AI and semiconductor technologies. Despite the recent downturn in tech stocks, ASML’s stock has remained resilient, posting gains of around 30% year-to-date. This performance underscores the company’s long-term growth potential, driven by its critical role in the semiconductor supply chain and its monopoly over the production of EUV lithography machines.

In conclusion, while Nvidia may capture the headlines next week with its earnings report, investors should not overlook ASML. As the only provider of the technology that underpins Nvidia’s most advanced chips, ASML stands to gain substantially if Nvidia exceeds expectations, making it a key stock to watch in the ongoing AI revolution.

Frequently Asked Questions

1. What is ASML’s relationship with Nvidia?

ASML’s machines are used to manufacture the chips that Nvidia designs. If Nvidia reports strong earnings, ASML could benefit as a sympathy stock due to their integral role in chip production.

2. What does ASML manufacture?

ASML is the only company in the world that makes extreme ultraviolet (EUV) lithography machines, which are essential for etching tiny, complex designs onto silicon wafers for microchips.

3. How many parts are in an ASML EUV machine?

An ASML EUV machine consists of more than 100,000 parts. However, ASML only manufactures about 10% of these parts themselves, sourcing the remaining 90% from hundreds of specialized companies worldwide.

4. Why does ASML not manufacture all the parts for its machines?

ASML acts as a system integrator and forms partnerships with specialized suppliers to ensure the highest quality components. This reduces risk, as issues with any single part could affect the entire $200 million machine.

5. What makes ASML’s EUV machines unique?

ASML’s EUV machines use extreme ultraviolet light with an extremely short wavelength to print incredibly tiny details onto microchips. This process involves bouncing light off the flattest mirrors on earth, which are critical to the machine’s functionality.

6. What is the significance of the mirrors used in ASML’s EUV machines?

The mirrors used in ASML’s EUV machines are made by Zeiss and are the flattest in the world. They are so precise that if they were scaled to the size of the United States, the largest bump would be the size of a speck of dust.

7. How does ASML maintain its monopoly in the AI market?

ASML has built a massive network of exclusive deals with specialized suppliers, creating a significant moat around its technology. Experts believe it could take decades and billions of dollars for any company to challenge ASML’s position.

8. What is the High Numerical Aperture (High NA) EUV lithography machine?

The High Numerical Aperture (High NA) EUV lithography machine, or EXE platform, is ASML’s next-generation machine. It represents a major breakthrough in chip manufacturing, enabling the production of smaller transistors and denser chips.

9. What benefits does the EXE platform provide?

The EXE platform allows for the etching of lines up to 1.7 times thinner than previous machines, enabling up to 2.9 times more transistors per chip. This results in higher processing speeds, greater memory density, and more compute per watt.

10. How does ASML benefit from the demand for AI chips?

As demand for high-performance and energy-efficient AI chips increases, ASML benefits due to its monopoly on the manufacturing of the critical lithography machines used in chip production.

11. How has ASML’s stock performed recently?

Even after a recent downturn in tech stocks, ASML’s stock has risen by approximately 30% year to date, indicating significant growth potential over the long term.

12. Why is ASML considered to have the biggest monopoly in the AI market?

ASML’s monopoly is based on its exclusive technology and supplier network, making it nearly impossible for competitors to replicate its capabilities in the production of advanced microchips.