Finimize - 🤖 ASML's winning

What’s going on here?

European tech giant ASML had some good news on Thursday for the chip industry – and investors.

What does this mean?

ASML is the only maker of the advanced equipment needed to churn out super high-tech chips – the kind that power the phone in your hand and Nvidia’s AI accelerators. So when the Netherlands-based company announced that it still expects its 2030 sales to be between 50% and 100% higher compared to last year’s, investors breathed a relaxed sigh. They’d been holding their breath since finding out that ASML’s orders fell well short of estimates in the third quarter. So the latest announcement was a sweet relief, suggesting a brighter outlook for the company and the broader industry.

Why should I care?

The bigger picture: Uneven demand.

This latest look into ASML’s books shows that the chip industry is experiencing some strange times. On the one hand, demand for purely AI-related products is through the roof, with companies like Nvidia racing just to keep up. On the other hand, semiconductor demand has been weak in the auto industry and the industrials sector.

For markets: Spending’s big shadow.

The buzz and promise of AI has forced tech companies to replace their post-pandemic belt-tightening programs with pricey, investor-approved data center projects. But here’s the thing about all that spending: when a business splashes out on a big-ticket item, the depreciation – that’s the value an item loses each year – counts as an annual expense in subsequent years. That means Big Tech’s massive splurge on data centers will show up as huge depreciation costs in the future, which could dent profit margins unless revenue increases by an equal amount.

What’s going on here?

The International Energy Agency (IEA) just released a gloomy oil forecast.

What does this mean?

Since the geopolitical situation in the oil-producing Middle East is tense, you might’ve expected crude prices to be on the up in 2024. But that’s not been the case. See, a sluggish global economy has taken a chunk out of demand for the commodity – especially in China, which used less of the slippery stuff for six consecutive months through September. At the same time, supply from the US, Brazil, Canada, and Guyana has been growing. From the US alone, output jumped to a monthly record of 13.4 million barrels a day in August. Combined, that’s created a glut in the crude market – one that’s likely to stick around. So now the IEA expects global oil supply to exceed demand in 2025 by more than one million barrels a day.

Why should I care?

The bigger picture: Sticky situations.

This oversupply has been gathering despite more than two years of production curbs by OPEC+. And it explains why the group of oil-producing countries has already delayed its plans to open the taps – twice. Needless to say, the IEA’s forecast this week won’t make for happy reading among the group: it says the expected surplus will happen even if OPEC+ scraps its plans to restore output. If the group presses on, the global glut will be even bigger.

For markets: Trough times.

Too much of anything tends to lead to lower prices, and that’s certainly true of crude. In fact, if OPEC+ were to turn the taps wide open next year, some predict that oil could slip to $40 a barrel – roughly 40% less than it goes for today. Makes sense: at around six million barrels a day, the agreed-upon curbs represent roughly 6% of global oil demand.