1 brilliant US artificial intelligence stock to buy before 2025

AI stocks still have a lot of room to run.

| More on:
A man with a beard and wearing dark sunglasses and a beanie head covering raises a fist in happy celebration as he sits at is computer in a home environment.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Despite some concern about a bubble in the artificial intelligence (AI) sector, AI stocks are once again climbing near all-time highs following the US Federal Reserve's decision to lower benchmark interest rates.

One measure of AI stocks, the VanEck Semiconductor ETF, an exchange-traded fund (ETF) that counts Nvidia, Taiwan Semiconductor Manufacturing, and Broadcom as its top three holdings, is up 10% from two weeks ago, though it's still down 16% from its peak in July.

One AI stock, in particular, seems oversold. It is expecting a revenue rebound and has a wide economic moat thanks to its unique product advantages, all of which make it an excellent buy heading into the new year.

I'm talking about ASML (NASDAQ: ASML), the leading maker of lithography systems -- machines that use light to make semiconductors.

What is ASML?

ASML is a Dutch company that was founded in 1984 as a joint venture between the electronics company Philips and Advanced Semiconductor Materials International (ASMI), a manufacturer of chipmaking machines.

After several decades of innovation, rollout of new products, and acquisitions, ASML is the clear leader in lithography systems today. It introduced its first prototype of an extreme ultraviolet (EUV) machine in 2010. This machine uses a shorter wavelength, allowing for smaller chip features that make it faster and more powerful.

The EUV machines have become the state-of-the-art industry standard for semiconductor production, but ASML is still the only company that manufactures them. It does have competitors that make less advanced deep ultraviolet machines (DUV).

That gives ASML a wide economic moat as the EUV machines are very expensive to make, and the company has unmatched intellectual property, a long history of research and development, and key supplier and customer relationships in the industry. ASML spent 20 years developing the technology, working with suppliers and partners to do so.

The machines are highly complex, containing around 100,000 parts, and shipping them requires dozens of freight containers and trucks, as well as three cargo planes. In a typical quarter, ASML sells a small number of these very expensive machines. In the second quarter, it sold 100 lithography systems.

Where ASML stands today

Thanks to its dominance of its industry, ASML has built a formidable business, on track for more than $30 billion in revenue this year, and it's highly profitable with an operating margin that has hovered around 30% in recent years.

However, the company does face challenges. The industry is emerging from a cyclical downturn after revenue jumped in 2023, and management has said that 2024 will be a transition year, as it expects strong demand to return in 2025.

Separately, the intensifying tech cold war with China has also impacted the business. In response to US demands, the Dutch government has restricted ASML from exporting its most advanced systems to China, which could impact its revenue.

Why the stock is a buy before 2025

Sluggish growth in recent quarters, concerns about China, and worries about a broader bubble in AI have all weighed on the stock since its peak in July. ASML is down 28% since then.

However, looking ahead to 2025, the future looks much brighter as the company expects strong sales growth next year, noting secular growth in key semiconductor end markets like green energy, electrification, and new applications.

Additionally, the foundry industry is on the verge of a construction boom as a number of chip stocks like TSMC, Samsung, and Intel are planning to open new fabs to accommodate skyrocketing demand for semiconductors in the AI era. That should ensure a bright future for ASML over the next five years as it faces no competition in EUV machines.

While its earnings are currently suppressed because of the cyclical slowdown, the stock trades at a forward P/E of just 24 based on 2025 earnings estimates. Considering ASML's competitive advantages and future growth opportunities, the stock looks like a steal at that valuation.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the 'five best ASX stocks' for investors to buy right now. We believe these stocks are trading at attractive prices and Scott thinks they could be great buys right now...

See The 5 Stocks *Returns as of 30 April 2025

Motley Fool contributor Jeremy Bowman has positions in Broadcom. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended ASML, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended Broadcom and Intel and has recommended the following options: short November 2024 $24 calls on Intel. The Motley Fool Australia has recommended ASML and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on International Stock News

Happy man working on his laptop.
International Stock News

Prediction: This artificial intelligence (AI) stock will be the biggest winner of 2025

Artificial intelligence will be one of the biggest growth opportunities this century.

Read more »

Legendary share market investing expert and owner of Berkshire Hathaway Warren Buffett
International Stock News

Could Warren Buffett's last move as Berkshire Hathaway CEO be buying this beaten-down "Magnificent Seven" stock?

Buffett is a value investor at his core, and he doesn't often buy shares of expensive companies.

Read more »

A woman holds a soldering tool as she sits in front of a computer screen while working on the manufacturing of technology equipment in a laboratory environment.
International Stock News

Prediction: This artificial intelligence (AI) stock will be worth $5 trillion in 3 years

Let's take a closer look at the catalysts that could propel this stock toward that valuation.

Read more »

A woman sits at her computer with her chin resting on her hand as she contemplates her next potential investment.
International Stock News

This Artificial Intelligence (AI) chipmaker just got a game-changing boost from Amazon, and Nvidia investors should be paying close attention

Amazon just made a notable investment in Nvidia's top rival.

Read more »

Happy man working on his laptop.
International Stock News

A once-in-a-decade opportunity: Here's why I'm buying Alphabet stock like there's no tomorrow

Alphabet's stock rarely gets this cheap, and right now could be a once-in-a-decade opportunity to scoop up shares at a…

Read more »

A woman looks questioning as she puts a coin into a piggy bank.
International Stock News

Is Warren Buffett's Berkshire Hathaway the smartest investment you can make today?

So, with all the uncertainty, is Berkshire Hathaway the smartest investment you can make today?

Read more »

Warren Buffet
International Stock News

7 ways Warren Buffett changed my investing approach

I'm a big fan of Warren Buffett, and have been for many years.

Read more »

iPhone with the logo and the word Google spelt multiple times in the background.
International Stock News

Down 12% this year, should you buy Alphabet stock?

The Google owner is underperforming the Nasdaq Composite, which has rallied in recent weeks.

Read more »