Image source: Getty Images
When it comes to mega-cap companies, Europe is very much lacking. While the US is home to a number of trillion-dollar plus businesses today, Europe has none. I see a European company that has the potential to achieve a $1trn market cap in the not-too-distant future, however. Listed on both the Euronext Amsterdam and the Nasdaq, this company sits at the heart of the artificial intelligence (AI) revolution and looks set for strong growth in the years ahead.
An AI monopoly
The company I’m talking about is ASML (NASDAQ: ASML). Based in the Netherlands, it makes extremely advanced equipment for semiconductor manufacturing.
More specifically, it specialises – and has a monopoly – in Extreme Ultraviolet (EUV) lithography machines. This equipment – which is very expensive – is needed by companies like Taiwan Semiconductor Manufacturing Company, Samsung, and Intel to produce high-powered chips for AI.
Two reasons ASML can get to $1trn
There are two main reasons I believe that this European company will be the first to achieve a $1trn market cap.
The first is that it is the largest company in Europe today with a market cap of about €291bn. So, it has a headstart on every other company. The second-largest company is software firm SAP with a market cap of €248bn. The third-largest is luxury goods powerhouse LVMH at €237bn.
The second reason is that I expect to see strong top-and bottom-line growth over the next decade as the AI revolution gathers steam. In the years ahead, companies like Taiwan Semi and Samsung are likely to build a significant number of new chip manufacturing plants in order to meet the high demand for semiconductors. This should lead to strong revenue growth for ASML (it’s expecting growth of about 15% this year). Note that the company doesn’t just generate revenue from sales of its equipment – it also provides software that optimises the performance of its technology and enables chipmakers to achieve higher yields, and generates revenue from the servicing of its installed base of equipment.
“If our hardware innovations are Batman, then software is its Robin. Even though you might know of ASML as a hardware company, we actually have one of the world’s largest and most pioneering software communities.”
ASML
How long could it take?
How long could it take for ASML to get to a $1trn market cap?
Well, let’s keep things simple and say that the company averages 15% annual revenue growth over the next decade (it has averaged 19% over the last five years) and that this growth pushes the share price up by 15% per year. In this scenario, it would take about eight years to be worth $1trn (€850m at today’s exchange rate).
I could be way off the mark with this scenario, however. It could take much longer (or potentially less time) to get to $1trn, depending on revenue growth, earnings growth, and the valuation.
Worth a look?
Is this growth stock worth considering today? I believe so.
There are risks around the timing of orders (they tend to be quite lumpy) and tariffs. However, taking a long-term view, I think the stock should provide attractive returns.
It’s worth noting that earlier this month, four top-level company insiders bought quite a bit of stock. This suggests that they expect the share price to go higher.
