Finimize - 📉 ASML's chips are down

What’s going on here?

ASML reported less-than-satisfying order numbers last quarter, signaling that profit from its chipmaking machinery could take a drop.

What does this mean?

ASML’s sales and profit from last quarter might’ve hovered close to expectations, but those sales were around 21% lower than the same time last year. More importantly, the firm’s order numbers – a key indicator of future profit – came in at €3.6 billion ($3.8 billion), nearly 28% below traders’ expectations and 61% lower than the quarter before. Still, the company maintained its prediction that orders will pick up in the second half of the year before really taking off in 2025. But investors don’t seem willing to wait for the pricey stock to justify itself: ASML’s share price fell 6% after the results.

Why should I care?

Zooming in: Friends can make or break you.

ASML sells some of the most advanced chip-making machines on the market. That can give chipmakers an edge – but they’ll pay for it: the newest model is said to cost around $380 million. Naturally, then, ASML’s customers tend to be the biggest and the best, like TSMC, Samsung, and Intel. And luckily, all three have plans to build new plants – so it’s hardly surprising that ASML is counting on seeing some healthier sales later in the year.

Zooming out: Quality over quantity.

Any company that sells especially expensive products will struggle to maintain a constant flow of sales, so a slow quarter doesn’t necessarily signal a long-term trend. Plus, the US’s ban on exporting chip-making materials to China doesn’t seem to be having an impact. The restrictions only apply to ASML’s most advanced machines, which explains how the company managed to make 49% of its sales from China last quarter – up from 39% the quarter before. So actually, investors might take this opportunity to buy ASML’s stock now that it’s a little cheaper.

What’s going on here?

Annual British inflation came in at 3.2% in March, enough to one-up the US, but not enough to put interest rate cuts on the agenda.

What does this mean?

UK inflation might have reached its lowest level in two and a half years in March, but it was still slightly above the 3.1% that economists and the Bank of England (BoE) had predicted. Higher fuel prices can’t take the flak, because even core inflation – which strips out volatile food and energy prices – didn’t slow as much as economists had hoped. So while the central bank still expects inflation to hit its 2% target later this year, it’ll need sustained, concrete evidence that the UK is headed in the right direction before it can consider trimming its highest interest rates in 16 years.

Why should I care?

For markets: You can’t plan anything.

That data came hot on the heels of higher-than-expected US inflation figures, which pushed traders to slash their bets on rate cuts. And after the British figures failed to do damage control, traders trimmed those bets again. They now predict the first BoE cut in November instead of September, and think there’s only a 30% chance of a second trim this year – a significant shift from the two or three cuts that they predicted just weeks ago.

The bigger picture: Take that, America.

March marked the first time that British inflation was lower than the US’s since 2022. Mind you, the pair are fighting different battles, which is why the BoE suggested earlier this week that the UK may be able to cut rates first. Stateside inflation is largely a result of strong consumer spending that encourages sellers to raise prices, and higher interest rates can help by making it more expensive to borrow money. Meanwhile, the UK is hampered more by supply issues that drive prices up, and higher interest rates can’t unravel those kinks.