Why Did the ASML Holding Stock Drop 15% in June?

Major Points

In June, ASML was suffering along with the rest of the semiconductor sector.

On the back of the weakening consumer outlook for the world, chip stocks suffered a severe decline.

What took place

Recent weeks saw pressure on technology equities, particularly semiconductors, as the likelihood of an economic recession rose. Data from S&P Global Market Intelligence shows that ASML Holding (ASML--5.47 percent) stock experienced a 15% decline in June. The Nasdaq Composite fell 1.8 percent in the month, while the S&P 500 index fell 8.4 percent, capping off the worst first half of a year since 1970.

nvestment,Market,Sell,Shares,Stock,United Kingdom,United States

What then?

In June, stocks involved in the development and manufacturing of chips were hammered particularly severely. There are increasing indications that the global consumer is applying the brakes after two years of significant expenditure on devices for use at home and while working from there. The U.S. Federal Reserve's aggressive interest rate increases, which are intended to curb out-of-control commodity prices, are also dimming growth prospects for many businesses. Skyrocketing inflation isn't helping.

But that doesn't necessarily indicate that all firms are struggling. ASML offers EUV (extreme ultraviolet) lithography tools to chipmakers, who use them to create some of the most cutting-edge semiconductors available. Demand for the Dutch company's equipment isn't likely to slow down any time soon, given the persistently high demand for high-end computer chips in cloud computing and AI. In truth, ASML's problems are probably going to be relatively short-lived because the usage of AI and the cloud is expected to be a key priority in the business sector for the remainder of the 2020s.

Despite this, investors are unsure if they should pay a premium for high-growth but expensive equities like ASML right now (or at least for stocks that were expensive when 2022 began).

So what?

The fact that demand for ASML's lithography machines continues to be larger than current manufacturing capacity and supply chains will support is also encouraging. Any shipping delays will only push everything out to 2023 and beyond. For many years to come, this is probably going to be a story of consistent progress.

Shareholders must now decide if ASML's stock, which has dropped 44 percent so far in 2022, still represents a good value in the current economic climate. Shares are currently trading for 26 times anticipated current-year earnings and 15 times trailing-12-month free cash flow. This somewhat reflects the difficulties the business is having. But ASML Holding is a great place to start if you're looking for a broad-based play on the expanding significance of the semiconductor industry.