Latest / The Dutch Investors / #10 | ASML | Fundamental Analysis Part 2

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#10 | ASML | Fundamental Analysis Part 2 · The Dutch Investors

• 0:00
  SPEAKER_01: Welcome back everybody to this special Boxing Day episode.
• 0:04
  SPEAKER_01: As promised today, our premium fundamental analysis of ASML Part 2.
• 0:09
  SPEAKER_01: We hope you're enjoying this holiday season as much as we are, and we can make it probably even better with this educational podcast on ASML, our little Christmas gift to you.
• 0:21
  SPEAKER_01: Just like part 1, Bauk and Matthijs, our co-founders, have spent months diving deep into the numbers, the story, and secrets behind ASML.
• 0:30
  SPEAKER_01: For those of you just joining, this is a taste of what we offer to our premium members every single week.
• 0:36
  SPEAKER_01: Our goal is simple help you deeply understand and find interesting new companies and decide if they deserve a place in your or perhaps our personal portfolios.
• 0:48
  SPEAKER_01: Let's not waste any more time because today we'll conclude our deep dive into ASML, focusing on their valuation and give you our conclusion of ASML.
• 0:59
  SPEAKER_01: Enjoy.
• 1:02
  SPEAKER_02: Today we are discussing part 2 of the ASML analysis.
• 1:07
  SPEAKER_02: And we don't want to spoiler, but we did both by some ASML stock after the stock market reaction on the Q3 2024 resource.
• 1:16
  SPEAKER_02: Why?
• 1:29
  SPEAKER_02: This analysis is for educational purposes only.
• 1:32
  SPEAKER_02: Always do your own research, and it's likely that one of us, and in this case both of us, currently holds or will hold a position in the companies discussed.
• 1:47
  SPEAKER_02: This podcast is recorded on the 28th of October 2024, and the stock price is currently trading at around 680 euros.
• 1:57
  SPEAKER_02: So let's begin with the management team.
• 1:59
  SPEAKER_02: Matthijs, who is the relatively new CEO of ASML?
• 2:04
  SPEAKER_03: Yes, I think in part one we spoke about Peter Wenning and Martin van der Brink and how important they were at forming ASML.
• 2:13
  SPEAKER_03: But it's nice that they appointed a new CEO who's in charge since February 2024, and his name is Christophe Fauquet.
• 2:22
  SPEAKER_03: My French accent is not that good, but he's 46 years old and he is working at ASML since 2008.
• 2:30
  SPEAKER_03: So he's he is from inside the company, which is always a good sign, I think.
• 2:34
  SPEAKER_03: It's also good to mention that he is not new in the semiconductor industry because before ASML he worked at KLA Corporation.
• 2:44
  SPEAKER_03: If you remember from the first part, KLA is a company who does a lot with the processing control and the testing of semiconductors.
• 2:52
  SPEAKER_03: So yeah, Fouquet has steadily risen through the ranks at ASML and he has played a key role in some significant developments.
• 3:00
  SPEAKER_03: For example, he was involved in the adoption of EUV technology in 2018 and 2022.
• 3:06
  SPEAKER_03: That's the CEO.
• 3:07
  SPEAKER_03: That's the CEO in uh in very short few sentences, yeah.
• 3:12
  SPEAKER_02: Yeah, yeah.
• 3:13
  SPEAKER_02: But if you listen to the last few Ernest calls, um, he sits there as well.
• 3:19
  SPEAKER_02: You hear him speaking.
• 3:20
  SPEAKER_02: Uh, what's your impression of him?
• 3:23
  SPEAKER_02: Well, you can hear he's French.
• 3:26
  SPEAKER_03: It's not only his name, but also his accent.
• 3:29
  SPEAKER_03: But uh no, without jokes, um he looks to me, he looks like a very uh introverted and smart CEO.
• 3:39
  SPEAKER_03: Uh, he doesn't like to brag about the company.
• 3:41
  SPEAKER_03: I think he's very realistic, um, connecting as well.
• 3:46
  SPEAKER_03: So, yeah, I think that's what I can make of it.
• 3:49
  SPEAKER_03: What do you think about him?
• 3:50
  SPEAKER_02: Yeah, I listened to the last earnest call, and I think he's somewhat uh softer than Peter Wenning.
• 3:58
  SPEAKER_02: Yeah, he he looks more kind.
• 4:00
  SPEAKER_02: Uh, to be yeah, not that Peter Wenning was um that doesn't mean to say anything about the qualities, of course, of uh Fauguette or Peter Wenning, the the former CEO, but uh yeah, that's the impression I have of uh Christoph Fauquet.
• 4:17
  SPEAKER_03: Yeah, I think at least it's very good to see that he is from inside the company and that he was appointed by Peter Wening and uh Marty van der Brink.
• 4:26
  SPEAKER_03: They more or less raised him to become the the CEO.
• 4:29
  SPEAKER_02: Yeah, he was several years uh under the wings of uh Peter Wenning and uh van der Brink, and and he looks very capable, so so that's good.
• 4:37
  SPEAKER_03: Yeah.
• 4:38
  SPEAKER_03: So let's see in the coming years.
• 4:39
  SPEAKER_03: Um of course the CFO of every company is also very important.
• 4:44
  SPEAKER_03: And what can you tell us about him?
• 4:46
  SPEAKER_02: Yeah, the CFO of uh ASML is Roger Dossen, and he is currently 59 years old, and he has been ASML's CFO since 2018.
• 4:57
  SPEAKER_02: Roger Dodson has a long career in financial functions and looks very competent.
• 5:02
  SPEAKER_02: The impression he gives me is that he knows not only things about finance but also knows quite much about the technical side of ASML.
• 5:10
  SPEAKER_03: Uh, how do you know that, Walker?
• 5:12
  SPEAKER_02: Yeah, I've seen him speaking at a live session uh during one of these investor events.
• 5:17
  SPEAKER_02: Uh Dudson comes across as an honest and approachable individual.
• 5:21
  SPEAKER_02: And during that event, he also told what ASML was doing, and of course he talked about the finances, but also about the technical side.
• 5:30
  SPEAKER_02: And it's good to see a CFO not only knowing things about the numbers but also of what the company actually does and how the future looks like in the industry.
• 5:41
  SPEAKER_02: CFO Dawson and also CEO Forget have been working multiple years side by side with the two important persons for HML, and you know who I mean, right?
• 5:51
  SPEAKER_03: Yeah, of course, and I've I hope the listeners do as well because in the in part one we spoke briefly about them.
• 5:57
  SPEAKER_03: And the first one, of course, I think the most important person in the maybe even the history of ASML is Martin van der Brink.
• 6:05
  SPEAKER_02: Yeah, van der Brink is is such a unique figure.
• 6:08
  SPEAKER_03: Yes, he he's involved with the company since the beginning, um, so since they were working in this shelter uh on the Philips terrain, and he has he has taken part in the development of almost every machine of ASML, including the newest EOV machines.
• 6:27
  SPEAKER_03: He's a very interesting personality as well.
• 6:30
  SPEAKER_03: He's very direct, uh very result-oriented, I would say, very interested in technology.
• 6:37
  SPEAKER_02: I remember from the stories in the in the book, Focus, that Peter Wening often had to keep in calm when they were visiting Carl Zeiss, for example, and uh that company couldn't make something happen, he could become quite angry following the book, and then uh Peter Wening had to call back to Germany to Carl Zeiss and uh apologize ASML for for the behavior, but also for the engineers at ASML, it's quite hard to work side by side with such a direct wizard-driven man because uh, let's take by example you design and make the DUV machine work, it's quite a complex machine, and you're very happy that it worked.
• 7:22
  SPEAKER_02: And Peter Bennick would immediately say, Let's go to the EUV machine.
• 7:26
  SPEAKER_02: This is just the beginning.
• 7:28
  SPEAKER_02: We have to work uh even with more materials, with more complex systems.
• 7:32
  SPEAKER_02: I think it's quite hard to uh to work at ASML with such a man uh standing behind you.
• 7:38
  SPEAKER_03: Yeah, agreed.
• 7:39
  SPEAKER_03: I think uh you have to have uh a thick skin, as we say in Holland, right?
• 7:44
  SPEAKER_03: I don't know if it's an English verb as well, but no, uh I don't know either.
• 7:51
  SPEAKER_02: Let's move on to the former CEO, uh Peter Wenning.
• 7:55
  SPEAKER_02: Yeah, he became the CFO of ASML in 1999, and he became CEO in 2013.
• 8:03
  SPEAKER_02: And one thing I do remember about Peter Wenning is that he famously said in uh in an earnings call, um, I don't know which earnings call, but he said uh ASML is not even halfway there, and this is also reflected in his forward-looking statements.
• 8:19
  SPEAKER_02: By 2030, ASML expects to generate between 44 billion and 60 billion in revenue compared to about uh 28 billion in 2023.
• 8:29
  SPEAKER_02: So what he says we see also in the numbers, numbers and his uh financial outlook, and that's uh that's something yeah, investors do appreciate.
• 8:39
  SPEAKER_03: Yeah, and it's very interesting to see whether that uh forward-looking statement uh will be the same because the investor day is almost there, uh, I think halfway November.
• 8:50
  SPEAKER_03: So let's see if uh Fouquet agrees with him.
• 8:53
  SPEAKER_03: Um or maybe they will revise the outlook again, like they did in the third quarter.
• 9:00
  SPEAKER_02: That would be really sad to see, to be honest, because you also think like maybe he did left the ship because he saw trouble coming or um yeah, things like that, that he that he left because of that, but uh, I'm not sure about that.
• 9:15
  SPEAKER_03: You think he would do that?
• 9:16
  SPEAKER_02: No, I'm I don't think he will do that.
• 9:19
  SPEAKER_03: No, me neither.
• 9:21
  SPEAKER_03: No.
• 9:21
  SPEAKER_03: What about um let's talk about the incentives for the management?
• 9:24
  SPEAKER_03: Because uh, as you know, incentives are very important for human behavior and decision making.
• 9:29
  SPEAKER_03: So can you tell us something about the incentives at ASML and what kind of decisions we can expect based on that?
• 9:37
  SPEAKER_02: The management total remuneration exists of three parts.
• 9:41
  SPEAKER_02: And first, there is of course the salary, also known as the base salary, and this is less than 25% of that total compensation.
• 9:49
  SPEAKER_02: So this is just a small part, and the other 75% is based on short-term incentives and long-term incentives.
• 9:58
  SPEAKER_02: When we look at the yeah, the the goals in the short-term incentives, they are mainly based on financial goals and primarily focused on the A-bit margin, so the operational margin.
• 10:12
  SPEAKER_02: And also part of the short-term incentives are the technology leadership index and customer orientation.
• 10:20
  SPEAKER_02: So this is what the uh what the short-term incentives look like, and when we go to the long-term incentives, we see that it's based on uh relative total shareholder return, so that is the stock price plus dividends compared to some other companies.
• 10:37
  SPEAKER_02: And we also see here notably that in the long-term incentives they included return on average invested capital, and this is something we don't see that often.
• 10:48
  SPEAKER_02: What what are your thoughts about this, Matthijs?
• 10:51
  SPEAKER_03: Yeah, we think the ROIC is always a good metric to have as a company because it encourages the management to allocate the capital wisely, and in the case from ASML, well, profits can of course um they can fluctuate.
• 11:07
  SPEAKER_03: Am I taking the ROA IC ASML is getting the average of three years, so the ROC in three years, uh, which is good metric in our opinion.
• 11:18
  SPEAKER_02: Yeah, that's right.
• 11:20
  SPEAKER_02: And um, the only thing about the incentives that I'm not particularly happy with is that they also included the A-bit margin.
• 11:30
  SPEAKER_02: Because, as you know, uh RD expenses are accounted for in the income statement and are not capitalized on the balance sheet.
• 11:37
  SPEAKER_02: So the more ESML invests in RD, the lower the A-bit margin would be.
• 11:42
  SPEAKER_02: And this could create some unintended incentives for the management to reduce RD spending.
• 11:47
  SPEAKER_02: Um, yeah, we will come back to this point later if they actually do cost cutting on RD.
• 11:53
  SPEAKER_02: Um you know, I will I will spoiler it here.
• 11:56
  SPEAKER_02: They don't do they uh they invest around 4 billion in uh in RD uh in the last year, so yeah, the RD expenses are enormous, but this is just something to keep an eye on.
• 12:09
  SPEAKER_03: Yeah, and it's good to know that in both the short-term incentive as well as the long-term incentive, there are um there are measures for the technology leadership index, which stimulates RD.
• 12:23
  SPEAKER_03: So maybe eBid doesn't really account for it, but I think the measure in technology leadership will make sure that ASML will keep investing in RD.
• 12:33
  SPEAKER_02: Ah, so so RD expenses are included in the technology leadership index.
• 12:39
  SPEAKER_02: Do I understand that why?
• 12:41
  SPEAKER_03: I don't know if that's the case directly, but indirectly for sure, because I think it measures like the the patents, how technology at um how advanced a business is operating in terms of technology.
• 12:54
  SPEAKER_03: So yeah, to come to that point, you have to invest in RD, of course.
• 12:58
  SPEAKER_02: Yeah, you have to innovate a lot, and uh yeah, you're right.
• 13:02
  SPEAKER_02: And maybe uh you can tell us something about the skin and the game of the management team.
• 13:08
  SPEAKER_03: Yeah, in 2023, uh Christophe Fouquet totals remuneration uh amounted 3.5 billion, uh, with the majority earned through long-term incentive rewards.
• 13:21
  SPEAKER_03: And by the end of 2023, uh Fouquet owned around 7,000 shares of ASML with a stock price of around 680 euros, this equates to around 4.5 million worth of shares, and this is around six to seven times his base salary.
• 13:40
  SPEAKER_03: Of course, um Fouquet is just uh CEO since 2024, so I think the share-based incentives will now really start to take off.
• 13:50
  SPEAKER_03: So I think in the coming years you can expect Fouquet to raise his share capital.
• 13:56
  SPEAKER_02: Yeah, and then let's move over to Dawson, the CFO.
• 14:01
  SPEAKER_02: Uh, he he owns around um 70,000 ASML shares, which is more than 70 times his base salary in sort in stock.
• 14:10
  SPEAKER_02: So uh that's quite good.
• 14:12
  SPEAKER_02: And when we move over to Vanink and Van der Brink, the former CEO and chief technology officer.
• 14:20
  SPEAKER_02: Um I'm just so curious about if Vanning and Van der Brink sell their positions in ASML.
• 14:25
  SPEAKER_02: Now they don't have management functions at ASML.
• 14:28
  SPEAKER_02: And yeah, I'm not sure how we can track this.
• 14:31
  SPEAKER_02: Uh maybe it will be shared in the in the news or something like that.
• 14:35
  SPEAKER_02: But if they sell, that would mean yeah, that that would be a small red flag to me that they don't have yeah, maybe that they have less trust in the company now that they are not heavily involved, or um yeah, maybe you can share your thoughts about this.
• 14:53
  SPEAKER_03: I don't know, like Van der Brink's position of 11,000 shares is not that much.
• 15:00
  SPEAKER_03: It it's less than 10 million euros.
• 15:02
  SPEAKER_03: So if he would sell his position, then I wouldn't be too surprised, I think.
• 15:08
  SPEAKER_03: Because maybe he wants to give something to his children or grandchildren, or he wants to buy a house in Spain just to name some things, and but of course that would be um a very positive sign if they keep on to their shares.
• 15:24
  SPEAKER_03: And I don't know either if we can track this.
• 15:27
  SPEAKER_03: I think they don't have to file their positions uh to the Dutch uh registration, so I don't know.
• 15:36
  SPEAKER_02: Yeah, I don't know either.
• 15:37
  SPEAKER_02: Um yeah, but the when we look at the share count of uh Venk and van der Brink, it stood out to me that Van der Brink, such an important figure at ASML, who has been working there for more than 20 years, has not that much shares.
• 15:54
  SPEAKER_02: I thought he is so heavily involved, he's so important for the company.
• 15:58
  SPEAKER_02: I think he has been rewarded for that in in in shares, but uh of course he has quite a lot of money, but it's less than the CFO who's been working there since 2018.
• 16:13
  SPEAKER_02: So yeah, that's something uh I didn't I didn't really understand, but it are the facts.
• 16:20
  SPEAKER_03: Yeah, maybe he just doesn't care that much about the money, and uh we know that he loves the technology, he loves ASML.
• 16:28
  SPEAKER_03: So I don't know, I maybe he just doesn't care that much about the money or about the stock market.
• 16:33
  SPEAKER_02: Maybe he cared more about uh pushing the boundaries of uh of the laws of nature, yeah.
• 16:39
  SPEAKER_03: I'm sure he does, yeah.
• 16:41
  SPEAKER_03: Alright, then let's go to the financials.
• 16:48
  SPEAKER_03: So, Bauka, can you talk us through some important financial metrics for ASML?
• 16:53
  SPEAKER_02: Yeah, of course.
• 16:54
  SPEAKER_02: Um one thing that stood out to me was their revenue growth.
• 16:58
  SPEAKER_02: Of course, we know that ASML is a fast growing company, but over the last five fiscal years, from 2018 to 2023, the revenue growth was 20% per year on average.
• 17:10
  SPEAKER_02: So that's whoa, that's so fast.
• 17:14
  SPEAKER_02: And the revenue in 2023 was 27.5 billion euros, and this is gonna be in 2024 around the same number because this is yeah, they announced this is uh some kind of transformation on the year, and they and in the last earnings call they also announced that next year 2025 will be some kind of yeah, the same year, not that much growth that we expected.
• 17:42
  SPEAKER_03: Yeah, and to reach the midpoint of this updated outlook for 2025, HTML has to grow 16% next year, right?
• 17:53
  SPEAKER_03: Yeah, and for the midpoint of the given outlook for 2030, they need to grow 8% per year between 2026 and 2030.
• 18:02
  SPEAKER_03: As we said before, we don't know if this outlook will still be in place uh next month.
• 18:08
  SPEAKER_03: So let's wait for that.
• 18:10
  SPEAKER_03: But it seems pretty reasonable, right, to grow with 8% per year.
• 18:14
  SPEAKER_02: Yeah, I think to be honest, Matthijs, this outlook, especially that from uh 2030, is a little bit conservative.
• 18:23
  SPEAKER_02: Because if we saw of course we cannot extrapolate the the growth in the past, but uh when we look at the trends and the market dynamics, I think yeah, 8% growth per year is just doable.
• 18:37
  SPEAKER_03: I maybe even think that they can uh revise their outlook upwards because when they give this first when they gave this first projection in 2022, uh there was not really a AI boom yet.
• 18:50
  SPEAKER_03: So uh companies like Nvidia didn't do far as great as they do now.
• 18:55
  SPEAKER_03: So maybe with all the developments in AI, IoT, you name it, when they take that into account, they will even come to a higher revenue guidance.
• 19:06
  SPEAKER_02: Yeah, and Mathijs, I saw we just had a a little typo here.
• 19:11
  SPEAKER_02: Uh ASML needs to grow with around 10% per year till 2030 to uh get to their growth outlook in um revenue, and they the the the gross margin needs to needs to grow 8% higher than uh than in 2025.
• 19:31
  SPEAKER_02: So that are the the good numbers.
• 19:34
  SPEAKER_03: Yeah, that's a good correction of you, and uh but I've I still think it's pretty reasonable to do it.
• 19:40
  SPEAKER_03: Yeah, also if you look at a lot of research from uh companies like McKinsey, they project similar growth for the entire industry, yeah.
• 19:50
  SPEAKER_02: Yeah, the so ASML as a monopolist, yeah.
• 19:54
  SPEAKER_02: Of course, also here um they need to grow on average with around 10% per year.
• 20:01
  SPEAKER_02: I think some years will be 15%, some years maybe even 20%, but there will also be because of the yeah, the the chip cycle, there will also be years when when they don't grow or they have even uh negative growth.
• 20:16
  SPEAKER_02: So that are my thoughts on uh on growth.
• 20:19
  SPEAKER_02: Um, so we discussed the revenue here.
• 20:22
  SPEAKER_02: Maybe you can tell us something about their profitability.
• 20:25
  SPEAKER_03: Yeah, margins in the entire semiconductor industry are great, they're just fantastic, and it's same uh accounts for ASML.
• 20:36
  SPEAKER_03: So they have gross margins of about 50%, uh, sometimes a bit more, sometimes a bit less.
• 20:42
  SPEAKER_03: Uh but for 2030 they are even pointing at more than 55% gross margins, 58 to be precise.
• 20:51
  SPEAKER_03: 58, even look.
• 20:53
  SPEAKER_03: They realized net margins of about 28%, and um, yeah, that's for a hardware company, it's not a a Microsoft or a Google that makes their money mainly through software, uh so those are great numbers.
• 21:10
  SPEAKER_03: Uh the cash conversion as well, because well, profit on paper is nice, but there's nothing for the shareholders in that.
• 21:19
  SPEAKER_03: Uh so for ASML we see that the free cash flow conversion is around 100% over the last years, and this can bump quite a bit because sometimes ASML has to invest uh heavily in CapEx.
• 21:33
  SPEAKER_03: But on average it it's more or less the same uh compared to their earnings per share.
• 21:38
  SPEAKER_03: About that earnings per share, they they grew for the last five years they grew with 27% per year, and that is just an insane number.
• 21:49
  SPEAKER_03: Uh especially if you compare it to the growth in revenues that we s that we saw.
• 21:56
  SPEAKER_03: But also that is a reason why ASML always seems Expensive, right?
• 22:01
  SPEAKER_03: A lot of analysts they they never tell you to buy ASML because it's always too expensive.
• 22:06
  SPEAKER_03: They will always say to you the P ratio of ASML is 40, which is too high.
• 22:11
  SPEAKER_03: What is your opinion about it?
• 22:13
  SPEAKER_02: Yeah, I think ASML is a typical example of a of a quality company, and um we see that in the market overall you have to pay a price for quality, and that's that's just the same uh with ASML.
• 22:30
  SPEAKER_02: Of course, we can doubt about it if the valuation now is attractive or not, but we will uh yeah in the in this analysis we come back to that later.
• 22:41
  SPEAKER_02: Um, but what are your thoughts about yeah, that ASML always seems expensive, maybe even right now, and we both bought the stock.
• 22:50
  SPEAKER_03: I think historically we bought it even PE-wise for quite a good price now.
• 22:56
  SPEAKER_02: 33 or something like that.
• 22:58
  SPEAKER_03: Yeah, I think the average since the COVID period it must be more than 40, but yeah, it's always seems too expensive, but ASML is growing very rapidly.
• 23:10
  SPEAKER_03: Uh so we see that the revenue in the last few years grew with what 20% per year, as you said, and earnings are even growing with 27% kegger in the in the past five years.
• 23:23
  SPEAKER_03: So if you account for that, like in the in the future years, then a PE of 40 is not that expensive.
• 23:31
  SPEAKER_02: No, no, there's still way more room to grow for for ASML.
• 23:38
  SPEAKER_03: And ASML, of course, not the only company that always looks too expensive.
• 23:42
  SPEAKER_03: Like you said, almost all quality companies, especially right now, they seem too expensive.
• 23:48
  SPEAKER_03: Um, for example, Costco or uh Hemes or Microsoft, that they they all look very expensive, but they are not, at least most of them.
• 23:59
  SPEAKER_02: No, I think we as investors look too much at the short term, maybe next year, next three years, but real quality companies can grow for a period of 10 years, maybe even after that, maybe even 20 years.
• 24:11
  SPEAKER_02: If we look at Microsoft, of course, that is an extreme example of a quality company.
• 24:16
  SPEAKER_02: It would be such a mistake if you said in 2005 they are too expensive because they were trading at a multiple of 20.
• 24:25
  SPEAKER_02: I think it would even be a great investment if you bought them at a PUH 50 or 80.
• 24:30
  SPEAKER_02: That yeah, with quality price valuation is isn't the most important thing as long as as it's reasonable.
• 24:39
  SPEAKER_03: Yeah, fully agrees on that, and uh very well said, I think.
• 24:43
  SPEAKER_02: Thank you, thank you.
• 24:44
  SPEAKER_03: And what about uh the capital allocation of ASML?
• 24:48
  SPEAKER_03: Can you tell us something about that?
• 24:49
  SPEAKER_02: Yes, of course.
• 24:50
  SPEAKER_02: ASML returns cash to shareholders in the form of dividends as well as in the form of buybacks.
• 24:56
  SPEAKER_02: And since 2013, we see they allocated way more money into share buybacks, especially in 2021, when the stock was at an all-time high, around 700.
• 25:06
  SPEAKER_02: And at the time I was, I think even then I was a shareholder of ASML, and I remember opening the annual report and reading that that they bought so much stock.
• 25:18
  SPEAKER_02: Yeah, and and at the time I really couldn't understand it.
• 25:22
  SPEAKER_02: Maybe I was at the time even also too short-term minded.
• 25:27
  SPEAKER_02: Um, but what are your thoughts about the massive share buybacks in 2021?
• 25:32
  SPEAKER_03: Yeah, we searched for some graphs on the internet, of course, we googled some, and then you can see a graph with the valuation of ASML and the buybacks of shares, and it's not very consistent because when prices are very high, when the valuation is relatively high, ASML is buying a lot of shares in the last few years, and when the share looks cheaper, uh they prefer dividend or holding it as cash or paying off debt, so they are not that consistent in terms of share buybacks, and they could really improve in that, in my opinion.
• 26:09
  SPEAKER_03: So that's maybe a critical note to uh Roger Dawson and the management of ASML in the past few years.
• 26:16
  SPEAKER_02: Yeah, totally agree on that.
• 26:18
  SPEAKER_02: Yeah, it's just almost looks like they are trying to bully us as value investors where the price is high, they they they do sharp share buybacks, and when the stock is and where the share price is low, they yeah, hold it as cash.
• 26:31
  SPEAKER_02: That's yeah, I think Warren Buffett would have uh would have an opinion about that.
• 26:36
  SPEAKER_03: Yeah, he would raise us questions for sure.
• 26:38
  SPEAKER_02: Yeah.
• 26:40
  SPEAKER_02: Okay, now let's go to some non-financial numbers.
• 26:43
  SPEAKER_02: ASML sold in 2023 around 400 DUV systems and only 53 EUV machines.
• 26:50
  SPEAKER_02: Isn't that a huge gap?
• 26:52
  SPEAKER_03: It is a huge gap, but you have also you also have to look at the prices of these machines.
• 26:59
  SPEAKER_03: So an EUV machine cost around 180 million US dollars, an high EUV machine even 350 million dollars, and the DUV machine, uh depending on the type as well of the machine, uh, cost far under 100 million, submachines even around 10 million US dollars.
• 27:19
  SPEAKER_03: So if if you look at the value of the sold machines, this will be quite closer than the 400 sold DUV against the 50 EUV machines.
• 27:31
  SPEAKER_02: Yeah, yeah.
• 27:32
  SPEAKER_02: If you look at the absolute sales numbers, I I think that's uh that's completely right.
• 27:37
  SPEAKER_02: And also the the time to make a EUV or uh a high NA EUV machine, yeah, it's just so much more complex, it's so much more time consuming.
• 27:47
  SPEAKER_02: So, yeah, that's just also a difference.
• 27:49
  SPEAKER_02: What what explains this huge gap between uh the type of machines?
• 27:54
  SPEAKER_03: Yeah, I think a high NA EUV machine is also triple or four times the size of a DUV machine.
• 28:01
  SPEAKER_03: So the time it takes to work on those machines and to ship it to the customer, it takes just so much more time and it also brings as well much more revenues.
• 28:14
  SPEAKER_02: Yeah, and let's let's I don't think we need to go too deep into this, but something I uh I thought about is that I'm not sure if this is 100% right, but I thought I thought um I heard them talking in a call like if a customer orders a DUV machine, they have it in two, three months, and when a customer orders a EUV machine, they have to to wait a couple of quarters before they before it gets actually uh delivered to their fab.
• 28:46
  SPEAKER_03: Yeah, that's crazy.
• 28:47
  SPEAKER_03: Yeah, yeah.
• 28:49
  SPEAKER_03: I think a lot of people underestimate the logistic process that it it takes to make an high-nee machine and then ship it to the customer.
• 28:58
  SPEAKER_03: Yeah, it's crazy.
• 28:59
  SPEAKER_03: It's crazy.
• 29:00
  SPEAKER_02: And um do we need to talk about depth at if we talk about ASML?
• 29:06
  SPEAKER_02: Is it a risk?
• 29:08
  SPEAKER_03: No, we agree it's not a risk because ASML's cash and equivalents are roughly equal to its outsetting depth.
• 29:15
  SPEAKER_03: So that means that the cash reserves um effectively offset the depth on the balance sheet, and that's why we don't see it as a risk.
• 29:24
  SPEAKER_02: No, that's that's completely right, and they also have sufficient cash on the uh on the balance sheet, and most of the debt is uh is long-term obligation debt, so so that's uh quite safe to to say it like that.
• 29:38
  SPEAKER_03: Yeah, and we already talked a bit about RYC because it's a measure of ASML.
• 29:45
  SPEAKER_03: Of course, we also calculated the number ourselves.
• 29:49
  SPEAKER_03: So can you take us through the calculation of the RYC from ASML?
• 29:53
  SPEAKER_02: Yeah, I I will not uh walk you through the the whole RYC uh calculation because it's just a lot of numbers.
• 30:02
  SPEAKER_02: Maybe you can look look it up in the in the written ASML analysis, but the RIC that we calculated for ASML is 42%, and that's just incredible.
• 30:16
  SPEAKER_02: We see so much companies that has a RIC of under 20%, uh maybe even around 10%.
• 30:24
  SPEAKER_02: But and this means that if ASML invests 100 euros into property, plant and equipment and other operational expenses, they get the first year, they get already 42 euros back from that investment.
• 30:38
  SPEAKER_02: And uh the year and this means they have the full investment back in three years, and that's that's insane.
• 30:45
  SPEAKER_02: Uh, so many companies dream of our RRIC of 42 percent, and it's just amazing.
• 30:53
  SPEAKER_03: There were many numbers, but uh I think if the listener doesn't fully understand it, he can just take a look at the written analysis.
• 31:01
  SPEAKER_03: I think that one explains it very well.
• 31:04
  SPEAKER_02: Yeah, good addition.
• 31:05
  SPEAKER_02: Let's go to the risks and opportunities if you uh or do you want to talk more about the financials of AL.
• 31:12
  SPEAKER_03: No, I think we are ready to go through and go to the risks and opportunities.
• 31:22
  SPEAKER_01: Hey, Steam here, your usual podcast host.
• 31:25
  SPEAKER_01: I just wanted to give you a quick reminder that our prices on theDutchinvestors.com will increase on December 30th.
• 31:34
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• 31:51
  SPEAKER_01: And if you made it through part one and this far in part two, let me give you one final gift.
• 31:58
  SPEAKER_01: If you use Christmas20 on checkout, we will give you another 20% off on any plan you choose.
• 32:06
  SPEAKER_01: So head on over to theDutchinvestors.com and get your Christmas discount before our prices increase.
• 32:13
  SPEAKER_01: Back to the ASML analysis.
• 32:16
  SPEAKER_02: Maybe you can kick off with the main risk of ASML.
• 32:19
  SPEAKER_03: Yeah, one risk that pops up in your mind immediately is of course China.
• 32:25
  SPEAKER_03: We spoke about it many times, it's all over the news right now.
• 32:28
  SPEAKER_03: But if China would invade Taiwan, uh that would mean that the most advanced chips in the world will not be produced for at least a few years.
• 32:39
  SPEAKER_03: And I think this would be the biggest nightmare of TSMC, but also ASML and even companies like Amazon, Apple, Nvidia will all let their semiconductors be produced at TSMC, mostly in Taiwan.
• 32:56
  SPEAKER_03: I think that's a that's a big risk for sure.
• 32:59
  SPEAKER_03: Um, but what's what's also a big risk related to China is the further banning of uh DUV machines to China.
• 33:07
  SPEAKER_03: So the Dutch government and the US government already forbid ASML to sell EUV machines to China.
• 33:14
  SPEAKER_03: But what happens if the government also um prevents ASML from selling to China?
• 33:22
  SPEAKER_03: Do you think that's uh that's a major risk for ASML?
• 33:25
  SPEAKER_02: This is just such a complex uh thought experiment because it is of course possible, and sometimes you see it on the on the news they they are talking about this.
• 33:37
  SPEAKER_02: But if they do this, if the EU and the US uh decide that we don't ship DUV machines anymore to China, we don't maintain DUV machines anymore, um then we push China just in the corner and we will also stimulate them for developing their own lithography machines.
• 33:59
  SPEAKER_02: So I think this is just not a good thing to do, but that's just my opinion.
• 34:05
  SPEAKER_02: Of course, EU leaders and maybe even people in the US think totally different about this, but I think um it would be net good if we uh keep chipping DUV machines to China.
• 34:22
  SPEAKER_02: Maybe uh share your thoughts, Matthijs.
• 34:26
  SPEAKER_03: Yeah, fully agrees on that one, and uh also to add about the first risk that we mentioned, so a Chinese invasion of Taiwan.
• 34:36
  SPEAKER_03: Well in the short term, let's say in the in the first five years, maybe three to five years, when it happens, if it happens, uh every company, every business, maybe even the whole world uh will be in panic and will suffer great economic losses.
• 34:55
  SPEAKER_03: But at the end, the world needs advanced semiconductors, and there's only one company that uh creates machines that can produce those uh semiconductors, which is ASML.
• 35:07
  SPEAKER_03: So you would see, and I think you greatly you've written it up greatly as well, is that a lot of other fabs will be popping up in the US, in Europe, and other Asian countries that need ASML machines to produce semiconductors.
• 35:24
  SPEAKER_03: So if you are invested in ASML or TSMC, I think you need to prepare yourself mentally for this moment because there are many articles and there's even Chinese laws that say that at a certain point Taiwan will be from China.
• 35:40
  SPEAKER_02: I did actually read a book about uh about China, about the Chinese president, Xi Jinping, uh, to to learn more about this situation between Taiwan and uh and China.
• 35:53
  SPEAKER_02: And to be honest, I don't remember that much of the book about the world history of China and about uh Xi Jinping, but one thing I remember that is that it's it is actually a goal to reunite uh Taiwan to China.
• 36:09
  SPEAKER_02: So China actually sees them as some kind of province, and Xi Jing just wants to reunite both countries uh under the hood of China, and of course, there is a lot of resistance in Taiwan for this.
• 36:24
  SPEAKER_02: Um yeah, but when you look at the facts, China is so much bigger, so much more powerful, and a lot of the export actually from Taiwan is to China, so also they have economical power, yeah, it's it's a very hard situation uh there.
• 36:41
  SPEAKER_03: Yeah, at the same time, you see that although Taiwan is slowly expanding its FEPS into other countries, they want to keep by far the majority of the production in Taiwan because they see it as a kind of silicon shield.
• 36:57
  SPEAKER_03: As long as the US and Europe are dependent upon Taiwan for those semiconductors, they will protect them.
• 37:04
  SPEAKER_02: Yeah, and this is so smart.
• 37:06
  SPEAKER_03: Yeah, they have a very good position with that.
• 37:09
  SPEAKER_03: Maybe if that wouldn't be the case, then China would have already seized it.
• 37:15
  SPEAKER_02: Yeah, yeah, it would not uh it wouldn't surprise me.
• 37:19
  SPEAKER_02: Yeah, but do you think that TSMC now they are expanding in uh Arizona, for example, in the United States?
• 37:26
  SPEAKER_02: Uh I did read that they also are going to do two nanometer chip production over there, and that it is extremely uh that are the most complex chips in a few years.
• 37:40
  SPEAKER_02: So, do you think the silicon shield will vanish over time?
• 37:45
  SPEAKER_03: No, I don't think so.
• 37:46
  SPEAKER_03: I think they are smart enough in uh in Taiwan to prevent this.
• 37:50
  SPEAKER_03: Although I read an article, I think last week, that said that um in that Arizona Fab they realized the the highest yield so far uh from any TSMC location.
• 38:04
  SPEAKER_03: So that's a very positive sign, I think.
• 38:07
  SPEAKER_02: Yeah, I did read that too.
• 38:10
  SPEAKER_02: That's incredible, right?
• 38:11
  SPEAKER_02: That that's I didn't expect that never.
• 38:16
  SPEAKER_03: No.
• 38:17
  SPEAKER_03: Me neither.
• 38:18
  SPEAKER_03: It was very strange to read.
• 38:21
  SPEAKER_03: But I think Taiwan will be smart enough to keep the far majority of production in Taiwan.
• 38:27
  SPEAKER_02: Yeah, of course we are talking about only one FEP in Arizona, and I think they have four or five enormous chip uh fabs in Taiwan, so uh the the majority of the yeah chip production chip production capacity is uh is would be mainland on uh on China uh on Taiwan.
• 38:47
  SPEAKER_03: Yeah, but at the at the same time, China is not doing nothing and sitting on the sidelines because they are also investing heavily in their own chip manufacturing capabilities.
• 39:01
  SPEAKER_03: They even tried one time, maybe we told it as well in the last episode, but they once tried to reverse engineer an ASML DUV machine, so they bought one, put it, put it at the university, uh, got a lot of the best Chinese engineers there, and tried to just just demolition the machine and then build it back up, but they couldn't get it working again.
• 39:26
  SPEAKER_03: But however, they are still investing billions of dollars into their own chip manufacturing uh plants, so there's of course a chance that at the end they will be able to produce their own chips.
• 39:40
  SPEAKER_02: My thoughts are like uh there I see 20 enormously smart Chinese uh technical engineers standing looking at the at the DOV machine and still figuring out how can we make this thing work, and uh yeah, where would that DOV machine now be?
• 40:01
  SPEAKER_02: Actually, I don't know.
• 40:03
  SPEAKER_02: I think it's still not working, I think it's still not working either.
• 40:08
  SPEAKER_02: Oh okay.
• 40:09
  SPEAKER_02: Um, and of course, there is uh there is the risk of uh disruption.
• 40:14
  SPEAKER_02: Sometimes there comes an article by like uh I think one year ago it was applied materials to introduce uh some kind of lithography machine, and yeah, in the in the Netherlands they the newspapers did write about it, like maybe this can replace the ASML lithography machine, but after that I've never heard something about it.
• 40:38
  SPEAKER_02: But if there comes a new technology, a new machine um that could produce chips as good as the lithography machines of ASML, yeah, it would be very hard to uh to imagine that, but if this happens, it would be uh disastrous for ASML, I think.
• 40:56
  SPEAKER_03: Yeah, I think that this is the risk with the biggest impact if it happens.
• 41:02
  SPEAKER_03: Yeah, lowest chance, biggest impact.
• 41:04
  SPEAKER_03: Exactly.
• 41:06
  SPEAKER_03: Because once uh such a technology will break through, it means that it's probably more efficient than ASML lithography solutions.
• 41:15
  SPEAKER_03: I think uh we wrote a part about uh photonics instead of using electrons to communicate within a chip, it uses light, which is supposed to be way more efficient, but I think it's still in the very early phase in development.
• 41:33
  SPEAKER_03: A lot of things are uncertain.
• 41:36
  SPEAKER_02: And of course, there could be a company that's also def that is now developing the machines for that, and uh they are now in the shadow, we don't know about it, and in 10 years, yeah, it would be the new new ASML.
• 41:50
  SPEAKER_02: Uh yeah, that this is really an uh enormous risk, but have to uh yeah, we have to look, we have to see.
• 41:59
  SPEAKER_03: I think I know one more risk.
• 42:02
  SPEAKER_03: Um tell us.
• 42:04
  SPEAKER_03: I was just thinking ASML has more than 5,000 suppliers, and ASML is a global company, of course.
• 42:13
  SPEAKER_03: Well, with 5,000 suppliers, with every uh part to be connected perfectly in order to make the machine work, there's quite a high dependency upon each of those suppliers, and we know that a few of those critical suppliers are based in Israel.
• 42:33
  SPEAKER_03: We know that there's a conflict now between Israel, Lebanon, Hamas, uh, Iran even shooting uh rockets to each other.
• 42:42
  SPEAKER_03: Um this could be a risk, right?
• 42:45
  SPEAKER_03: What if things really escalate there?
• 42:48
  SPEAKER_02: Yeah, this is uh this is something we have talked about, I think, but we uh yeah but we didn't put it up in the an analysis, but we it's good we discuss it here.
• 42:59
  SPEAKER_02: Um yeah, I think you are completely right.
• 43:04
  SPEAKER_02: If if there is uh a critical supplier in Israel, I think uh forget maybe has sleepless nights because of that.
• 43:14
  SPEAKER_02: Um I don't know where it's located or something like that, but it's this is an enormous quiz.
• 43:20
  SPEAKER_02: But also, if a critical supplier can't uh develop better parts for the ASML machine, it will also be yeah, ASML has to has to grow, has to develop new machines, better machines for the uh customers, because otherwise Morse Law is gonna end uh soon, and that's not what we want.
• 43:41
  SPEAKER_03: So, what you say is every supplier has to keep pace with ASML, and yeah, if one business cannot do that anymore, that's that is a risk for ASML.
• 43:51
  SPEAKER_02: Yeah, not not all 5,000 suppliers are critical suppliers, of course, but but maybe hundred of them do make really Really, really complex parts for the ASML machine, and uh if they can keep up, yeah, it would be a big problem.
• 44:07
  SPEAKER_03: What do you think about if you speak in terms of uh probabilities now?
• 44:12
  SPEAKER_03: Very difficult maybe to estimate, but yeah.
• 44:16
  SPEAKER_02: That is the big question, and I don't think we can um yeah give a measure that good, and I think uh only the account manager of the the supplier can't assess that really well, but uh but I think we can't.
• 44:34
  SPEAKER_02: Yeah, but it is a great risk.
• 44:37
  SPEAKER_03: Yeah.
• 44:38
  SPEAKER_03: Enough risks now, I guess.
• 44:41
  SPEAKER_02: Enough about risks.
• 44:42
  SPEAKER_02: Let's go to the the happy side opportunities.
• 44:50
  SPEAKER_02: Talking about opportunities, you know, uh three years ago, maybe five years ago, nobody was talking about AI.
• 44:57
  SPEAKER_02: No, that's right, yeah, and now it's just mainstream, it's on the newspapers, the headers are AI is gonna replace that many jobs.
• 45:05
  SPEAKER_02: And I remember Peter Wenning talking about this on an earnings call, and he said um it was at the start of the AI boom, and he he said, like, this is just something that's inherent of our business model.
• 45:20
  SPEAKER_02: If we we are we are surfing on so many trends, just uh robotization, AI, um more uh sustainability trends, um robotics, yeah.
• 45:32
  SPEAKER_02: Yeah, exactly.
• 45:33
  SPEAKER_02: The world is constantly seeking for more efficient and faster and smarter uh machines and systems.
• 45:39
  SPEAKER_02: So this is this is something yeah in every machine, in every system, in every in every solar panel has to be a chip, and most of the chips are getting produced by uh by ASML machines.
• 45:53
  SPEAKER_02: So ASML will uh yeah, is it's just so well positioned to capture new uh yeah opportunities, new promising waves, and uh also to ride on for example the AI wave that's now uh happening.
• 46:10
  SPEAKER_03: Yeah.
• 46:10
  SPEAKER_03: And I think you can you can name much more other waves that could really take off in the coming decades.
• 46:18
  SPEAKER_03: Think about uh the race to space, for example.
• 46:21
  SPEAKER_03: If you look at how many Starlink uh satellites, space axis is shooting into orbit right now, for example, or if you see how many videos of robots we see nowadays, robots that can basically do everything they can interact with people.
• 46:38
  SPEAKER_03: I think it was a robot of Tesla, it could just um uh speak very naturally to to people and interact in a very human way, I would say, and of course, to be to be able to build those robots you need a lot of advanced semiconductors, yeah.
• 46:58
  SPEAKER_02: And indeed, the robots and the the computers that are things that we see that contain semiconductors.
• 47:05
  SPEAKER_02: But if we look at data centers, these are enormous, yeah, they are full of chips and we don't see them.
• 47:14
  SPEAKER_02: But if we use a large language model or we use Facebook or we use YouTube or some other social media platform, they basically run on data centers, and they data centers pop up everywhere at the Netherlands right now because yeah, it's uh there's so much demand for chips in the future, and uh ASML will certainly benefit.
• 47:37
  SPEAKER_03: The Netherlands, one of the most dense countries on earth.
• 47:40
  SPEAKER_03: Let's put a lot of data centers within it.
• 47:45
  SPEAKER_02: Oh, yeah, the government uh needs to make some hard decisions.
• 47:48
  SPEAKER_03: There's another discussion, of course.
• 47:51
  SPEAKER_03: Yeah, yeah, of course.
• 47:53
  SPEAKER_03: But yeah, let it be clear, let it be clear that ASML is serving on a lot of tailwinds and mega trends.
• 48:00
  SPEAKER_03: I think a second opportunity could be that China gives up on the race to make its own semiconductor industry.
• 48:10
  SPEAKER_03: So if China would stop investing in it, then this would be the ultimate confirmation that ASML's technology is irreplicable.
• 48:19
  SPEAKER_02: This would mean that uh one of the China Wisks, because we have uh we have three of them, uh like uh like invading Taiwan or something, but but um one of the China Wisks, which is um making their own EOV or lithography machines, is disabled.
• 48:35
  SPEAKER_02: So uh so that yeah, that would be uh would be great for ASML.
• 48:39
  SPEAKER_02: And the last uh opportunity I think is maybe even one of the most exciting for ASML is that the wave of de-globalization, which basically means more fabs overall in the world uh on more continents will take place.
• 48:57
  SPEAKER_02: And yeah, today every region just basically wants to own semiconductor fabs.
• 49:03
  SPEAKER_02: We see it in Germany, in Dresden, we see it in uh the USA, in Arizona, I think even in Saudi Arabia, they are talking with TSUC to put some fabs uh in the desert.
• 49:16
  SPEAKER_02: It's it's crazy.
• 49:18
  SPEAKER_03: Yeah, for ASML it's quite strange because the more inefficient the the fabs operate.
• 49:24
  SPEAKER_03: I mean, the more fabs they have, the the less efficient they are, most of the times.
• 49:29
  SPEAKER_03: The better it is for ASML because every fab needs to be equipped with an lithography machine by ASML.
• 49:36
  SPEAKER_02: Yeah.
• 49:38
  SPEAKER_02: Yeah, it's uh this is just something that's coming to take place in the coming years, and this is so exciting, and uh ASML is just really gonna benefit from this.
• 49:49
  SPEAKER_02: I'm trying to take a grasp into the the history of how this was 10 years ago.
• 49:55
  SPEAKER_02: Of course, uh fabs were expanding in Taiwan, South Korea with Samsung or Intel in uh in the USA, but how large would be the impact of this?
• 50:05
  SPEAKER_02: Do you think Mateis?
• 50:07
  SPEAKER_03: It depends.
• 50:08
  SPEAKER_03: I I don't I really don't know.
• 50:10
  SPEAKER_03: No, it's uh it it it it's a very difficult question.
• 50:13
  SPEAKER_03: I'm sorry.
• 50:14
  SPEAKER_03: It it also it also depends on the the size of this deglobalization, how many countries it's it's not a clear question of me.
• 50:23
  SPEAKER_02: Uh I'm sorry, but because it's also dependable on the size of the fabs and uh things like that.
• 50:29
  SPEAKER_02: But yeah, I think this is certainly a tailwind for ASML.
• 50:34
  SPEAKER_02: Should we go to uh the last part of our analysis, Matthijs?
• 50:39
  SPEAKER_03: Yes, let's go, and I think that's the valuation.
• 50:46
  SPEAKER_03: So I can say something about uh PE, and then maybe you can say something about the scenario analysis.
• 50:53
  SPEAKER_02: Yeah, that's that's fine.
• 50:54
  SPEAKER_03: Yeah, we thought we talked about it.
• 50:56
  SPEAKER_03: ASML is always or seems always expensive PE-wise, and ASML has a current price to earnings ratio of 37, uh more or less in line with the average in the in the past few years.
• 51:12
  SPEAKER_03: Most of the times it was a bit higher.
• 51:15
  SPEAKER_03: It um used to be, especially in uh in 2023.
• 51:19
  SPEAKER_03: I think last year it was even up to 50.
• 51:23
  SPEAKER_03: But yeah, you made a scenario analysis to see what is the the yeah, the value of ASML, what can we expect as a return as shareholders?
• 51:33
  SPEAKER_02: Okay, so the input for the scenario analysis it runs to 2030 and they grow with around 9% a year based on the midpoint outlook of uh 2030.
• 51:45
  SPEAKER_02: I think in 2030 they will have an exit multiple of 25, because that's yeah, uh it's a monopolist in a growing industry, and I think they can grow also after 2030.
• 51:58
  SPEAKER_02: Um, yeah, and with a profit margin of 35%, which is uh quite rational, I think, you get an expected return of around 10% per year, including dividends and uh share buybacks.
• 52:13
  SPEAKER_03: Yeah, and here your margin of safety is included in your conservative assumptions, right?
• 52:19
  SPEAKER_02: It's just the midpoint, so I'm not sure if it's that conservative, but but it's uh I think it's the most rational and the most uh let's talk about chances.
• 52:31
  SPEAKER_02: Um, I think the chance is very high that they reach their midpoint outlook of 2030.
• 52:36
  SPEAKER_03: So uh yeah.
• 52:38
  SPEAKER_03: At least for me it's difficult to know what the position of the SML is in 10 years from now.
• 52:45
  SPEAKER_03: But I think with uh an NPE of 25, you are quite realistic.
• 52:51
  SPEAKER_03: As you said, even then I don't see a lot of trends to end.
• 52:57
  SPEAKER_03: I think maybe it's just the just the start of some trends.
• 53:02
  SPEAKER_03: So I think that is quite conservative.
• 53:05
  SPEAKER_02: Yeah, and with this, uh you get an expected return of yes, just 10% per year, and um yeah, but just valuation-wise, it's uh it's attractive, it's good.
• 53:19
  SPEAKER_03: Maybe it's good to to mention the re because we both uh bought uh the stock again.
• 53:27
  SPEAKER_03: I mean we increased our position in ASML after the the dip, uh resulting from the Q3 statement with a very strong uh downwards revised outlook for 2025.
• 53:42
  SPEAKER_03: So for 10% a year, why are you willing to take the risks that we mentioned?
• 53:48
  SPEAKER_03: Because there are quite some risks, so why are you willing to take them for 10% per year?
• 53:54
  SPEAKER_02: I think the opportunities are bigger than the risks, so that's uh that's the short answer to your question.
• 54:02
  SPEAKER_02: Uh, also China, of course, it is a risk, but I think the the risk is yeah not that big because if you look at the effects of the risks, the largest impact it could have on revenue, if all the revenue of China disappears, it would be a maximum of 20% of the revenue disappearing.
• 54:23
  SPEAKER_02: And of course it is this is uh this is an impact on ASML, but not that huge, it would not be a disastrous investment if if there is happening something with China that's uh that's not in the favor of ASML.
• 54:38
  SPEAKER_02: So I think yeah, the opportunities here and the the business model of yeah, the mode of ASML is so strong that I'm willing to take uh take them at this valuation.
• 54:50
  SPEAKER_02: And what about you?
• 54:51
  SPEAKER_03: I agree, I think some of the risks that we mentioned they can cause for a uh field investment for the coming 10 years, maybe.
• 55:02
  SPEAKER_03: If we take a longer few then, I'm talking about uh China invading Taiwan, for example.
• 55:08
  SPEAKER_03: If ASML cannot deliver machines for a few years, it will mean that that maybe even ASML is uh uh operating against the loss in a few years.
• 55:24
  SPEAKER_03: So it will hurt any investor, I think.
• 55:26
  SPEAKER_03: But if if we take um an even longer view, so we we look back 10 years from now, maybe 15 years from now, it could be an opportunity, I agree on that.
• 55:36
  SPEAKER_03: But the main the business case for me stands with the market position of ASML as a monopolist, as a technology leader, uh, with a great network of suppliers, of clients working very closely together, uh, with a clean balance sheet and um this 10% value uh this 10% return per year for the next 10 years is for me quite conservative seeing the the mega trends that ASML is facing in the coming years.
• 56:05
  SPEAKER_03: I don't know if I was very clear in the beginning, but uh if not you can just cut it.
• 56:10
  SPEAKER_02: No, no, no, it's uh it's good.
• 56:13
  SPEAKER_02: Um and maybe we can share the prices at we bought the stock.
• 56:18
  SPEAKER_02: Maybe the listener would uh would appreciate that.
• 56:22
  SPEAKER_02: Uh I uh I will start, then you can look it up in the in your uh Excel sheet.
• 56:27
  SPEAKER_02: Um my price of my purchase was uh 630 euros and yeah, I will see in uh five, maybe ten years if that was a good decision, but I think uh the odds are in my favor.
• 56:44
  SPEAKER_02: What about you?
• 56:46
  SPEAKER_03: Yeah, I just looked it up and I bought it for 635 euros.
• 56:52
  SPEAKER_03: I think I increased my position with around 30% compared to my initial position, and that brings the total weight of ASML in my portfolio at almost 10%.
• 57:04
  SPEAKER_03: Okay, and you also own TSMC shares, right?
• 57:08
  SPEAKER_03: Yeah, that's uh a much smaller part, but um TSMC is around 5% of my portfolio, which means that well the total weighing towards the semiconductor industry is 15%.
• 57:19
  SPEAKER_03: And then I'm not taking into account uh Amazon, for example.
• 57:24
  SPEAKER_02: No, no, okay.
• 57:26
  SPEAKER_02: This is very hypothetical, but if China invades Taiwan and the Fabs of TSMC, the most advanced fabs, will be out of production.
• 57:37
  SPEAKER_02: Uh I I think TSMC could easily see uh maybe even 80% decline in share price.
• 57:48
  SPEAKER_02: What are your thoughts about that?
• 57:50
  SPEAKER_03: Yeah, maybe even more.
• 57:52
  SPEAKER_02: Yeah, it's crazy.
• 57:54
  SPEAKER_02: They they have fabs in Japan, America, and Dresden uh in a few years, but you know the thing is that the knowledge is still with TSMC.
• 58:04
  SPEAKER_03: There's still no other company that can produce at the yield that TSMC does, so they they will decline for sure with 80%, 90%, maybe even more.
• 58:17
  SPEAKER_03: But am I going to sell my shares then?
• 58:20
  SPEAKER_03: I don't know, I don't think so.
• 58:22
  SPEAKER_02: Because because we know the risks, yeah, and it would also be uh this the shares of ASML you were talking you are talking about of TSMC?
• 58:32
  SPEAKER_02: Both.
• 58:33
  SPEAKER_02: Okay, okay.
• 58:34
  SPEAKER_02: Yeah, and TSMC would not be uh 0.5 position in your portfolio, so it would be uh yeah, very small, but um I think I will uh also not sell any shares if uh they invade uh Taiwan from ASML as well as TSMC.
• 58:54
  SPEAKER_02: Okay, I think uh do you have something to add here, Mateis?
• 58:59
  SPEAKER_03: Not really.
• 59:00
  SPEAKER_03: I I think we more or less just gave the conclusion.
• 59:05
  SPEAKER_03: But if you can wrap this up in just like a few sentences, or what would you say?
• 59:13
  SPEAKER_03: Okay, okay, the conclusion.
• 59:20
  SPEAKER_02: Yeah, ASML is just a phenomenal company, and in the earlier analysis, we have talked about the business model, about their mode is just incredibly strong.
• 59:30
  SPEAKER_02: Um, yeah, and they have built it up decades of know-how, and um they're so specialized in just one machine.
• 59:38
  SPEAKER_02: I think they are investing about 4 billion euros every year to strengthen their market position to to give the machine upgrades.
• 59:48
  SPEAKER_02: There's no other company that comes even close close to uh investing that much in RD and Little Corfu system.
• 59:55
  SPEAKER_02: So the company is just very strong, the mode is very strong, the financials look solid, um, the management looks uh looks good.
• 1:00:04
  SPEAKER_02: We have to see see in a few years uh what we think about uh the new CEO.
• 1:00:08
  SPEAKER_02: I think it's a too short period of time to make yeah to assess that uh right now, but he looks good.
• 1:00:16
  SPEAKER_02: Um and uh yeah the opportunities and risks are uh yeah, we've discussed them.
• 1:00:23
  SPEAKER_02: Um I think the opportunities outweighed the the risks of uh of ASML for ASML.
• 1:00:29
  SPEAKER_02: Anything to add, Mr.
• 1:00:32
  SPEAKER_02: Munger?
• 1:00:33
  SPEAKER_03: Mr.
• 1:00:33
  SPEAKER_03: Munger, not this time.
• 1:00:36
  SPEAKER_03: I just think that ASML is one of the greatest companies on earth, but it's very good to keep in mind that the risks for ASML they are way higher than for the average company, and also know again that both Balk and me are very biased because it's for both of us a substantial position in our portfolios, and also because there might be some home bias, because ASML is a Dutch company.
• 1:01:05
  SPEAKER_03: Um, so again, do your own research if you are interested in ASML and also really take a look at the risks if you're willing to take them.
• 1:01:15
  SPEAKER_02: Always do your own research.
• 1:01:19
  SPEAKER_03: That is very clear.
• 1:01:22
  SPEAKER_03: Okay, that couldn't be clearer.
• 1:01:24
  SPEAKER_03: Now I think then we are coming to an end, right?
• 1:01:26
  SPEAKER_03: Or do you have something to add now?
• 1:01:28
  SPEAKER_02: No, I have uh nothing to add.
• 1:01:31
  SPEAKER_03: Alright, then I think it is uh good to wrap up.
• 1:01:35
  SPEAKER_03: Please let us know if you liked this way of analyzing companies.
• 1:01:40
  SPEAKER_03: Of course, we did two parts now with two analysts working on it.
• 1:01:44
  SPEAKER_03: So please let us know by email or by by phone what you think of it, and maybe if you want to see this kind of research for another company, another big company.
• 1:01:56
  SPEAKER_03: And of course, thank you for listening to these two uh episodes of ASML.
• 1:02:01
  SPEAKER_03: We are very grateful for it.
• 1:02:04
  SPEAKER_03: And uh, I also want to thank you, Balga, for this uh research that you did together with me for the last uh one and a half months, I think.
• 1:02:13
  SPEAKER_02: Yes, yes, thank you, Matthijs.
• 1:02:15
  SPEAKER_02: Uh I did like researching uh a company with you, so uh was great.
• 1:02:23
  SPEAKER_01: Man, I remember listening to this episode when it just came out and was amazed by the way both Bauk and Mattijs explain it.
• 1:02:31
  SPEAKER_01: Perhaps one of the most misunderstood and difficult companies in the world in such an understandable way.
• 1:02:38
  SPEAKER_01: A great example of what we strive for at the Dutch investors.
• 1:02:42
  SPEAKER_01: Really, hats off to both Bauk and Matthijs for this analysis.
• 1:02:46
  SPEAKER_01: Unfortunately, this does conclude part two of our free premium analysis on ASML.
• 1:02:52
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• 1:03:32
  SPEAKER_01: I'm telling you now, there is much more to come, and we are very excited about 2025.
• 1:03:38
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• 1:03:40
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• 1:03:53
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• 1:03:58
  SPEAKER_01: The Dutch Investors team wishes you a wonderful holiday season and a healthy and good investing 2025.
• 1:04:05
  SPEAKER_01: And as always, stay curious, keep learning, and Merry Christmas!