Dutch chip-equipment maker ASML Holdings N.V.'s (NASDAQ:ASML) smaller-than-expected bookings for the third quarter and guidance cut sent shares of companies with exposure to artificial intelligence lower on Tuesday.
Overreaction: ASML guiding 2025 revenue led to an overreaction by the broader AI hardware sector, which fell 4.5% on Tuesday compared to Nasdaq's 1.2% fall, said Deepwater Asset Management's Gene Munster.
Only about 10% of ASML's revenue could be attributable to AI demand, the tech venture capitalist said. He estimates that about 40% of the company's revenue comes from its extreme ultraviolet, or EUV, lithography machines which are required for AI chip production. Assuming these machines produce AI-related chips 25% of the time, 10% of the overall business can be attributed to AI, he said.
Munster noted that ASML clarified that the weakness was not related to AI, but rather to other areas in logic, a slower-than-expected ramp in memory capacity additions, and weakening China demand for the company's Immersion systems.
"The AI trade is on track," he added.
Why It's Important: Optimism regarding AI technology has abounded since OpenAI's AI chatbot ChatGPT gained prominence, and chipmaker Nvidia Corp. (NASDAQ:NVDA) has emerged as the poster child of the AI revolution. Although most analysts see the AI bubble lasting through three to five years, investors have become wary about the stretched valuations of some of these stocks, especially due to the heavy investments companies are forced to make upfront before they begin to reap the rewards.
Wedbush's Daniel Ives said in a note published on Tuesday that he expects a tidal wave of enterprise spending as AI use cases explode across the enterprise. "We believe the overall AI infrastructure market opportunity could grow 10x from today through 2027 as this next generation AI foundation gets," the analyst said. He estimates a $1 trillion of AI cap-ex spending is on the horizon over the next 3 years
The Global X Artificial Intelligence & Technology ETF (NASDAQ:AIQ) fell 1.76% to $37.42 on Tuesday, according to Benzinga Pro data.
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