According to trade data specialist OEC, semiconductors were the number one globally-traded product in 2020 with a 15% share of total goods by value at $1.7 trillion, computers were 12%, oil was 9% and cars accounted for 4%.

What drives this global trade in chips is the fact the world is becoming ever more connected, from the phones in our pockets to the cars we drive and the data centres storing all our files in the cloud.

Industry body SEMI estimates spending on chip-making equipment will hit a new record of $108 billion in 2022, while between 2021 and the end of 2023 overall spending on new chip-making facilities will top $500 billion.

ASML’s world-leading EUV (extreme ultraviolet) machines use lasers to vaporise molten tin droplets into plasma, emitting extreme ultraviolet radiation which is focused into a beam and bounced through a series of mirrors so smooth that if they were the size of UK they wouldn’t have a bump larger than one millimetre.

This beam hits a silicon wafer, drawing into it transistors with features measuring less than five nanometers or the length your fingernail grows in five seconds. This wafer, with billions or trillions of transistors, is then made into computer chips.

During the 21st century to date Amsterdam-headquartered ASML (ASML:AMS) has emerged as Europe’s largest semiconductor equipment maker.

The company has grown its earnings per share at an average rate of more than 25% per year for the past 18 years thanks to strong sales growth and rising profits margins as it sells more high value-added EUV machines.

While this is astonishing enough, the company says it sees a ‘substantial growth opportunity’ over the rest of this decade with annual sales reaching between €30 billion and €40 billion by 2025 and the gross margin rising to between 54% and 56%. By comparison, 2022 sales are estimated to be €21 billion with a 53% gross margin.

For 2030 the firm expects sales of between €44 billion and €60 billion with a gross margin between 56% and 60%.

In other words, sales could double from their 2021 level in the next three years and treble in the next eight years, with earnings growing even faster as margins continue to expand.

This means ASML will generate vast amounts of surplus cash which it can return to shareholders, and it announced a €12 billion buyback programme starting in November 2022.

And yet the shares, thanks to a market-wide shift in sentiment against growth stocks and short-term issues in the chip industry, have endured a tough 12 months. This has created what we believe is an outstanding opportunity to invest in a superb business.

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