What's going on?

Chipmaking equipment maker ASML might finally be affected by the industry�s downturn, and it can only rely on its emergency backup for so long.

What does this mean?

ASML sells the machines that companies use to make advanced chips, but it�s been able to shrug off a slumping chip industry and lethargic demand for electronics for months. But no longer: the firm�s order intake halved last quarter from the same time last year, hitting its lowest level since 2020. Still, the Dutch firm had a big enough backlog to cushion the blow. So with chipmakers installing its hardware faster than you could polish off a plate of chips and dip last quarter, ASML managed to double its revenue and almost triple its profit. But if investors were impressed, they hid it well: they ignored the company�s better-than-expected outlook for this quarter to send shares down 5%, spooked by the dropoff in ASML�s orders.

Why should I care?

The bigger picture: When the stars align.
ASML might�ve worked through some of that order backlog, but there�s still a chunky $40 billion left over. And there might be more opportunity ahead: governments around the world are racing to build more chip plants on home ground to avoid d�j� vu of pandemic-induced supply hiccups. The US alone, for example, has received over 200 applications for its $40 billion chip production program. So there�s that, and there�s the anticipation of more demand from recently reopened China to boot.

For markets: Empty your cups.
Investors might have been a bit too cup half-full about the sluggish chip industry. An index tracking some of the biggest chip stocks has bloated 20% this year, double the S&P 500. Plus, its price-to-earnings ratio is verging on the peak levels of two years ago, when chipmakers couldn�t keep up with fired-up demand. But with the likes of TSMC disappointing for the second-straight quarter, analysts will no doubt be getting cold feet.