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ASML’s (NASDAQ:ASML) revised outlook is raising concerns across the industry

ASML Holding (ASML) extended its losses in pre-market trading on Wednesday after the Dutch chip equipment maker revised its FY25 sales forecast and indicated weaker demand for chips outside the AI ​​sector.

The company’s disappointing outlook hit global chip stocks on Wednesday, raising concerns about weakening demand and oversupply in the chip market. Let’s examine ASML’s forecast in detail and its potential impact on chip stocks.

ASML publishes a revised outlook for FY25

The company announced its third quarter results and revised its net sales forecast for FY25. It expects sales between 30 billion and 35 billion ($32.7 billion to $38.1 billion). This expectation is at the lower end of the company’s previous estimates. To further add to ASML’s problems, the company’s net bookings were 2.6 billion ($2.83 billion) in the third quarter was below analysts’ expectations 5.6 billion.

Furthermore, ASML CEO Peter Wennink warned that the market recovery was slower than expected, with weak demand for chips, with the exception of AI chips. In addition, the company is experiencing difficulties due to export restrictions on its chip-making equipment imposed by the US and Dutch governments, which have affected its operations in China.

What impact will ASML’s revised outlook have on other chip companies?

ASML’s revised outlook has raised fears of declining chip demand and overcapacity. This comes as analysts suggest that several chip makers, such as TSMC (TSM) and Intel (INTC), have gathered ASML’s tools during the pandemic and are now operating more efficiently. As a result, these companies can produce more chips with their current equipment, which has reduced the demand for new orders.

Furthermore, a Reuters report quoting Dan Hutcheson, vice chairman at analyst firm TechInsights, said ASML’s customers, including Intel and TSMC, are delaying new orders as the chip factory’s utilization rate stands at 81% this year. Hutcheson notes that manufacturers generally only increase tool purchases when factory utilization rates rise to the mid-90% range.

What’s the best chip stock to buy now?

For investors looking to enter the semiconductor sector, we’ve compiled a list of chip stocks that analysts are bullish on or cautiously bullish on using the TipRanks stock comparison tool.