ASM International: Navigating Short-Term Earnings Volatility Amid Long-Term Growth Catalysts in the Semiconductor Sector

The semiconductor industry is at a pivotal juncture, driven by the relentless demand for artificial intelligence (AI) and the transition to sub-3nm gate-all-around (GAA) architectures. Against this backdrop, ASM International (ASMIY) has delivered a mixed H1 2025 performance, marked by robust revenue growth but tempered by a decline in new orders. While short-term volatility is inevitable in a cyclical sector, the company's long-term positioning—rooted in technological leadership, strategic R&D, and deep customer relationships—suggests that its fundamentals remain resilient.

Short-Term Headwinds and Long-Term Tailwinds

ASM International reported Q2 2025 revenue of €835.6 million, a 23% year-over-year increase at constant currencies. This growth was fueled by surging demand for logic/foundry equipment and spares & services, particularly in AI-driven capacity expansions for advanced logic and high-bandwidth memory (HBM) applications. However, new orders fell 4% year-over-year to €702.5 million, reflecting a 10% sequential drop, primarily due to weaker demand in advanced logic/foundry segments. The company attributes this to temporary softness in customer booking cycles but emphasizes that underlying demand for GAA technology remains strong.

The gross profit margin of 51.8% in Q2, while slightly lower than Q1 2025's 53.4%, remains robust compared to 49.8% in Q2 2024. Operating profit surged by 40% in Q2, driven by cost discipline, higher sales, and margin improvements. Meanwhile, the company's €150 million share buyback program is 40% complete, signaling management's confidence in the stock's value.

Despite these positives, the company has adjusted its guidance for 2025, citing exchange rate volatility and the majority of its revenue being in USD (over 80%). It now expects full-year revenue growth to fall within a revised 10-20% range, with H2 revenue likely to mirror H1. For Q3, revenue is projected to be flat to slightly down (0%–-5% at constant currencies).

Strategic Positioning in a Shifting Industry

ASM International's long-term growth hinges on its dominance in single-wafer atomic layer deposition (ALD) technology, where it holds over 55% market share. Its platforms, such as the XP8 QCM and Previum Pro, are critical for 2nm and 1.4nm GAA nodes and HBM integration, enabling leading-edge manufacturing for TSMC, Samsung, and Intel. As AI-driven demand for advanced packaging and heterogeneous integration accelerates, ASM's tools are indispensable.

The company's R&D focus is equally compelling. It invests heavily in next-generation materials and processes, including molybdenum ALD and selective ALD, which are foundational for AI and automotive applications. Collaborations with universities and industry partners ensure it stays ahead of technological curves. For instance, TSMC's CoWoS capacity is expected to double in 2025, and ASM's tools are integral to this expansion.

Geopolitical diversification further strengthens its position. Expanding manufacturing footprints in Korea and Arizona helps mitigate risks from trade tensions and supply chain disruptions. This aligns with global "friendshoring" trends, ensuring stable access to key markets.

Macroeconomic and Industry Dynamics

The semiconductor industry is projected to grow to $697 billion in 2025, with AI chips alone accounting for over $150 billion. By 2030, the sector could reach $1 trillion, driven by AI, GAA, and HBM adoption. However, challenges persist:
- Geopolitical risks: U.S. export controls and Chinese material restrictions (e.g., gallium, germanium) could disrupt supply chains.
- Talent shortages: A global shortfall of skilled workers threatens capacity expansion.
- Cyclical volatility: The industry's history of boom-and-bust cycles remains a wildcard.

ASM International's exposure to these risks is mitigated by its focus on high-margin, long-lead-time equipment and its early mover advantage in GAA. Analysts project a 19% annual revenue growth over the next three years, with operating margins rising from 15.4% to 26.7%, reflecting its pricing power and operational efficiency.

Investment Implications

ASM International's H1 2025 performance underscores its ability to navigate short-term volatility while capitalizing on long-term growth drivers. While Q3 revenue may dip, the company's order backlog and visibility into AI-driven capacity expansions provide a strong foundation.

For investors, the key question is whether the current valuation reflects these long-term prospects. At a trailing price-to-sales (P/S) ratio of 6.2x and a forward P/E of 18x, ASM appears undervalued relative to peers like Lam Research (LRCX) and Applied Materials (AMAT), which trade at 7.8x and 8.1x P/S, respectively. The company's free cash flow conversion and buyback program further enhance shareholder value.

However, caution is warranted. A slowdown in AI adoption or geopolitical escalation could pressure margins. Diversifying exposure to other semiconductor sub-sectors (e.g., analog, automotive) might be prudent.

Conclusion

ASM International's H1 2025 results reflect the duality of its position: a company navigating near-term order fluctuations while securing its role in the AI and GAA revolutions. Its technological leadership, strategic R&D, and global footprint position it to outperform the semiconductor equipment sector in the medium to long term. For investors with a three- to five-year horizon, ASM represents a compelling case of disciplined growth in a high-stakes industry. The path ahead is not without risks, but the rewards for those who recognize its long-term trajectory are substantial.