ASML is a very impressive company but I worry about their market position: they have fewer customers for their latest technology than you have fingers on one hand.
They have a monopoly on Extreme Ultra-Violet technology, true — but on the demand side, economists call a similar lock by buyers a “monopsony”. That’s what ASML faces and it reduces their pricing power. TSMC, in particular, holds an enormous amount of power over their future revenue growth.
There are few customers in the semiconductor industry for good reason — the barriers to entry are extremely high. I don't agree that buyers hold the pricing power in this case. A monopsony occurs when there is only one buyer and many suppliers, which is not the situation here. Buyers need ASML's EUV machines because there is simply no alternative.
ASML is also fair with its pricing, which is reflected in its customers' healthy margins. The company could charge more but deliberately avoids price gouging — something management has previously addressed. Just yesterday, TSMC announced a $100 billion investment in U.S. chip manufacturing, and you can be sure ASML will be supplying the machines for this expansion.
The biggest risk to ASML is the emergence of a new technology that renders EUV obsolete. That's the key risk I would be most concerned about with the thesis.
Can I ask why you’re invested in ABBV? The reason being that I was considering opening a position myself
To boil the thesis down to a single word: Botox.
Interesting. Any chance you’ll do a write up on it anytime soon?
It’s down the pecking order at the moment, got a backlog of work to get through but I’ll add it to the list.
ASML is a very impressive company but I worry about their market position: they have fewer customers for their latest technology than you have fingers on one hand.
They have a monopoly on Extreme Ultra-Violet technology, true — but on the demand side, economists call a similar lock by buyers a “monopsony”. That’s what ASML faces and it reduces their pricing power. TSMC, in particular, holds an enormous amount of power over their future revenue growth.
How does this factor into your expectations?
There are few customers in the semiconductor industry for good reason — the barriers to entry are extremely high. I don't agree that buyers hold the pricing power in this case. A monopsony occurs when there is only one buyer and many suppliers, which is not the situation here. Buyers need ASML's EUV machines because there is simply no alternative.
ASML is also fair with its pricing, which is reflected in its customers' healthy margins. The company could charge more but deliberately avoids price gouging — something management has previously addressed. Just yesterday, TSMC announced a $100 billion investment in U.S. chip manufacturing, and you can be sure ASML will be supplying the machines for this expansion.
The biggest risk to ASML is the emergence of a new technology that renders EUV obsolete. That's the key risk I would be most concerned about with the thesis.
I'm warching inpost too.
What's its I.V. on your opinion?
I’m waiting for the 2024 annual report to be released, then I will update my financial model and share my fair value in a report.
Got it