ASML just reported earnings and the stock is down 10% on the day it went from $800 to 743. And we have some of the early news reports reading into this earnings report, one of them from fast companies saying that ASML stock price is dropping today after the semiconductor giant issued a critical warning about 2026. A critical warning that sounds really bad. What critical warning did they issue? We have Barron saying the ASML stock tumbles after growth warnings and earnings report
tariffs are biting. That's right, according to Barron's, the tariffs are taking a bite out of ASML. Then we have Bloomberg saying that ASML falls most since April after CEO walks back growth forecast. These articles don't paint a pretty picture about what just happened to ASML. With the stock being down 10%, it's reasonable to ask what happened, What were these critical warnings? What was so bad in this report, deserving of it to drop this much?
We're going to be going over it in this episode. Now, of course, we have other news. The banks reported earnings, like JP Morgan Chase and Goldman Sachs. President Trump is looking to maybe fire Jerome Powell, the Fed chair. Can he even do that? Is he capable of doing that? And how would the market react? And we have more news on Amazon's Project Kuyper, their Internet satellite. They have plans to launch this by the end of this year. We'll be looking at the details as well.
Now, I start things off by talking about this huge drop in ASML. The stock is currently down 10% from where it was just yesterday. And that is a notable drop for a stock that already seems like it's at a decent valuation. It's also a very high quality company. This isn't some meme coin. ASML is not some small cap, highly speculative company. This is, after all, one of the companies creating the backbone of innovation on the front of creating AI chips.
So ASML is a highly profitable, dominant company with a very wide Moat. It has technological supremacy over its peers. And yet it's down 10% today. And these news headlines make it seem like things aren't so good, like we have something to be concerned about here. Now, I must start off by saying, even before we go into some of the details, that I am a proud shareholder of ASML. I really like the company. I like what they're doing out
there. The the science behind this, the technology behind it is incredible. ASML has created something that's so incredibly difficult to replicate that even huge nations funded by their state can't figure it out. Nations like China are lagging behind ASM, LS technology. Now, right now, I do have a position in ASML that's around $49,700. Currently I'm in the green by a sliver by only $2000. So we're barely in the green on this one.
If I look at the one day just today, we're down $5100.00. So a big red day on the day. And of course that's because of this drop due to this earnings report. Now as we look at ASML, when I look at a drop like this after earnings, I've seen this so many times through so many holdings that I've held that it doesn't faze me quite as much as as it used to. You know, when you're first investing and you see a 10% drop, you think it's a really
big deal. But once you've invested for five or six years, you followed companies quarter after quarter, you realize that this is not unusual. It's really not. If you've been invested in Netflix for any period of time, you're expecting the stock to either go up 10% or down 10%. It's going to be one of them and
it's basically a coin flip. You can never really guess what's going to happen and that's the reason why you're always told to be a long term investor, to not play quarters because investing quarter to quarter is highly unpredictable and will lead you to making bad bets and losing money. Now, generally speaking, stocks trade based off of two different
things. They trade off of the fundamentals, the earnings report, having the revenue, the operating margins, the free cash flow, the KP is the units sold, so on and so forth. All the things you're seeing are the fundamentals of the company. But then beyond the fundamentals, you have another important aspect of every stock, which is the narrative. The narrative is the prevailing
sentiment on the stock. Whether investors are very hyped about it, they're excited about it, the future is really bright, or whether they're looking at it with a bit of concern, a bit of skepticism, they don't quite believe the bright future of the stock. That is the narrative and the combination of those two things, the marriage of those two things, is the overall story of a stock. A story is how you believe the narrative and the fundamentals will play out over long periods of time.
With a company like Netflix or Amazon, I have a a good story that I've created for these stocks over a long time period. I think they'll be very prosperous. I think they'll have great fundamentals and there's a good narrative behind the companies. So with ASML, there's two different things that could have gone wrong with this earnings report. Either the fundamentals were disappointing and the stock did not perform up to its expectations. It didn't grow revenue fast
enough. It didn't grow operating margins high enough. It didn't sell enough machines either that went wrong or investors have changed their narrative on the company. And with this reaction, it's firmly A narrative issue. If we look at the financial results they just posted for Q2 of this year, just the past three months, and we check in on how this company's actually
doing, it's very strong. We can look at it highlighted here by Qualtrim. Summarizing the earnings report, total net sales was 7.7 billion, the upper end of guidance. So they hit the high end of their guidance in revenue and by the way, they beat the revenue expectations boosted by high NA system revenue and strong upgrades in business. Net system sales were €5.6 billion driven by 69% logic and 31% memory. Install. Base management sales exceeded guidance 2.1 billion.
So out of their three revenue segments, which if we look at FML Heron, Qualtrum, we have these broken down into segments. They have three major segments, which is the install base. This is like a subscription type of revenue because it's so reoccurring. We have logic and we have memory. Out of these three, two of them are at the very high end of their guidance and one of them was within guidance. So overall, they beat on their revenue and two of the three are doing incredibly well.
This doesn't look bad. There's nothing concerning about the revenue growth of the company. And by the way, the revenue growth of a company is a really big deal. That's one of the major things we're looking at is how fast the company's growing top line and overall revenue growth is above 15%. This company's growing quickly and this last report showed that. We look at some of the other financial highlights. Gross margins were 53.7%, again,
above guidance. We're getting a lot of these things that are at the top end of guidance. Above guidance. Operating expenses were on track. R&D of 1.2 billion, you have SG and A at 299 million. We have net income of 2.3 billion with earnings per share of 5.9. They beat their earnings per share estimates as well. They ended the quarter with $7.2 billion in cash.
Now if we look at this information in this recent report from an ownership perspective, we look at it as having a vested interest in this business over a longer time period. That doesn't look bad. In fact, I would say quite objectively that looked really good. The report across the board just seems like business as usual. In fact, business may be doing a little bit better than usual. Then we look at their capital
return policy. This is the CFO and the CEO making decisions on where to invest, where to reinvest their capital and especially how to provide capital back to the shareholder. We have dividends and buybacks. They paid a dividend of $1.84 per share in Q2. The interim dividend in 2025 was $1.60 and we have Q2 share buybacks that totaled €1.4 billion. So we have some numbers of the dividends and buybacks they paid last quarter and we can put that in context with the return of
capital chart. Return of capital means the amount of capital money that they're returning back to you, the shareholder. And we illustrate this through dividends and buybacks. The dividends are in purple, the buybacks are in that nice tan color. Now, if I filter this by the past five years, now if we look at just the buybacks and we want to compare this compared to Q1 of 2025, we have the buybacks here, which is $3.01 billion in USD. If we look at this just in the
euro was 2.6 billion, so 2.6. They did 1.4 this quarter right around there. That's where the new chart will show. So they're still doing buybacks aggressively more than they did basically all of 2023 and 2024. And they're doing that because they have a big cash balance. Now if we bring up their cash pile, they said that they ended
the quarter with €7.2 billion. Now we translate the steros here, we have 9.1 in Q1, so 9.1 they will have right about here in Q2. So the cash balance still went down a step, but it has a lot further to go. They can do another massive quarter of buybacks, another one to $2 billion of buying back shares. That'll bring them back down to around here. And that's assuming that their cash balance doesn't increase
because of new inflows of money. So as they're chunking away at their balance sheet, doing aggressive buybacks every quarter, they're lowering their cash balance. And they're intentionally doing this over time. So if the stock drops at all, they can buy the dip like they are right now. I'm sure that ASML is doing aggressive buybacks today. Now they'll be able to do this again until the end of the year, and eventually they'll have another big year of free cash flow.
When the free cash flow does spike like we've seen in recent quarters, We saw in Q4 of 2024 that they gained $10.2 billion in free cash flow. When you have a big quarter like that, your cash balance also spikes up. That's why it went up so much in that same quarter. So as they use this giant stockpile of cash to buy back shares, the cash balance will continually go down. Then it will be restocked after the new year, and then they'll
be able to do it all over again. Now, so far, when looking at these numbers, the fundamentals of the company, looking at the revenue growth, the operating margins, the systems sold, the progress they're making overall and their capital allocation, how they're buying back shares, returning money to the shareholder through both dividends and share buybacks, I don't see anything that's too concerning. Certainly nothing that makes me want to run out and sell the
company. Nothing that I believe so far warrants a 10% down day, but that's because it's not in the fundamentals. Remember, this is a narrative issue where we get to the problems that ASML ran into. It was specifically from a statement from the CEO. This was given on the earnings call and I'll go through and read his direct remarks. The CEO mentions the top line growth, all the revenue they're gaining, the gross margins being
above guidance. He also mentions some of the advancements they're making in the technology. But then we get to the statements that are future looking. Quote, looking at 2026, we see that our AI customers fundamentals remain strong. At the same time, we continue to see increasing uncertainty driven by macroeconomic and geopolitical developments. Therefore, while we still prepare for growth in 2026, we
cannot confirm it at this stage. That last sentence there, especially that last part of the sentence is the reason the stock is down 10% today. The CEO commented on macro uncertainties, increasing unpredictability in this market, saying that even though they're preparing for growth in 2026, they can't guarantee it, they can't confirm it. At this stage, the CEO is basically hedging his bet.
He's giving a little bit more room, a little bit of margin of error, of downside probabilities due to macro uncertainties. Now, what macro uncertainties exist? Well, just in the past week, we've had Trump intensify the trade war with threats of a 30% tariff on the EU where ASML
resides. Now, we don't know how that will really affect ASML, how long those tariffs will be in place or even if they're going to be in place at all, how severely it will be or if it will be amped up or taken down. And this is precisely why the CEO of ASML is a little bit uncertain about next year. He's probably looking at the headline saying that this is an uncertainty, it's a risk factor
for the company. And a CE OS job is to not only outline a bright future and direction for a company, but also to warn investors about probabilities, about different risk factors to the company. And this is certainly one that he's warning about. Now, if we actually look at the wording, does the CEO of ASML say there's going to be no growth in 2026, we're not going to make any gains, There's going to be no revenue growth or earnings growth?
No, he never says that. In fact, quite the opposite. He says we're still preparing for growth in 2026. We're still preparing for it, but because of specific geopolitical developments and uncertainties, we can't confirm it at this stage. We don't know for certain. This is a very soft warning about the potentials that could happen if there's some ongoing massive trade dispute. And you have to look at it from the perspective of ASML.
They're not AUS company. They have many clients that aren't US either, but they're in the mix of selling their devices to almost everyone. They want a device that every country wants a piece of, so they're trying to sell to everyone. And meanwhile, you have President Trump, who is very brash. He has very aggressive negotiating tactics. the US is a
gigantic country. It's just massive economically and just overall a massive country saying that we're going to put these big tariffs on Europe, we're going to cause all these restrictions, we're going to go toe to toe with them. We're going to do all these things. And that creates a little bit of uncertainty. We can look further at the earnings report and the actual commentary by the CEO, the summary from Qualtrum on the topic of geopolitical and tariff risks.
It says ongoing trade disputes and tariffs create direct and indirect risks affecting both cost basis and the end market demand. So basically, even if these machines themselves aren't hit by the tariffs, if the US tariffs, everyone else, all those consumers that would be buying these phones and devices and different machines that use the chips would also be impacted. So it's not just the direct impact, the ASML that the CEO is warning about, They're also warning about any indirect
impact. Tariffs are a tax on trade. A tax slows down, it adds friction to whatever you're doing. So if there's less trading going on, there's less purchasing of devices that need ASML technology. They're not saying that this is for sure going to happen. They're saying that this is a warning. The management of ASML is working with customers and suppliers to mitigate direct
tariff impacts. They know that while they have more control over the direct impact of tariffs, they do not have as much control over the indirect effects. The GDP, customer confidence are harder to predict. So we have a bit more of a framework of why investors are concerned, the geopolitical uncertainties, the downstream effects this has on GDP, their customer confidence and so on.
Meanwhile, they're also giving outlook and guidance at least over 2025. They say the full year 2025 revenue is expected to be up 15% from 2024. That's fast growth. Where I get concerned about growth is when it's in the realm of around a a sales force where it's 7 or 8%, I'd hope companies grow a little bit faster, but
15% is, is very fast growth. Sales force is growing fast in 2025. But one thing they mentioned here is even though they're giving the guidance for 2025, they've pulled their guidance for 2026, saying 2026 guidance withheld due to macroeconomic, geopolitical uncertainty and customer CapEx timing. AI related demand remains strong, but visibility is reduced due to ongoing tariff and trade policy risks. So the story that we get from ASML today is that the fundamentals remain very strong.
In fact, they're getting better, the revenues growing, they're selling more machines. We have operating margins ticking up year over year. We have a very profitable business doing immense amounts of buybacks and dividends. That side of the story looks really good. But then we get to the narrative part and we have more uncertainty, more cautionary. We have concerns about trade policy, geopolitical events, restrictions.
If President Trump ramps things up and amps up the intensity on Europe, if they're not able to make a deal, that can have all sorts of downstream effects on ASM LS business. So we have strong fundamentals and then we have a narrative that looks very unpredictable. So overall, the entire story of ASML looks a little bit more unpredictable today. Now my prediction going into next year is that ASML will do better than what investors are expecting.
And even though we don't have official guidance, I believe that ASML will continue to grow. I think they'll grow both their top line and their profitability. They'll grow their earnings and free cash flow per share, in part by being highly profitable and doing immense amounts of buybacks. But on top of that, I still think they're going to grow top line revenue at a brisk pace. When we look at the concerns that ASML lists out, they're not
unfounded. President Trump is being very aggressive and he's threatening 30% tariffs on Europe. But we've seen a bit of this story before. We've seen this play out before. My initial thoughts on the tariffs was that President Trump would use it as more of a negotiating tactic. It's more something to get someone to the table to put a little pressure on him to try to
close a deal. So while the 30% number or whatever big tariff number President Trump throws out, that can seem very high, and of course it is, it's also not the number that's going to be landed on long term. It's a bit like when you go into a store and they have a salesperson that says, hey, this item's normally $50.00, but here I have it for 25. What a deal you're getting. You know that the first number is not really how much the thing
normally costs. You start off with a big number to make the other one seem a lot smaller. And I believe that's a lot of the negotiating tactics that President Trump uses. He is brash. He has a very aggressive negotiating style. It's not something I would endorse. I would do it differently if I was the president.
But that's just the case. When I look into what's going to happen over the next couple of years, I do not believe that the US is going to hamper growth, especially in AI with enormous taxes. I think that this will get resolved a lot lower, allowing companies like ASML to continue growing. Now, the CEO of ASML is correct and he's being prudent in looking at these headlines, looking at the threats being given and showing how it could impact the company's long term profits.
But the probability of these impacts actually being felt is really low. For this reason, I believe that ASML is still good value today. I think the company's going to grow next year. And although, like the CEO, there's no guarantees in investing, there never was. Selling the company, based on this report, I believe is a mistake. So I'm still holding all my shares. No. Next we have the big banks that reported earnings earlier this
week. My prediction was that the earnings would be good, and they're great. JP Morgan Chase reported earnings, Goldman Sachs did, Bank of America did, and all of them reported very strong earnings. If we look at JP Morgan Chase, this is the biggest bank in the world. There's multiple parts to JP Morgan. It's very diverse. They have consumer and community banking, they have commercial and investment services, they have asset and wealth management, they have corporate
and so on and so forth. So it's a a very diversified company. If we look at all the different segments of the business, the commentary on each part of it shows a very positive picture. For instance, if we look at the consumer and community banking segment, the revenues were up 6% year over year. We look at the card services, this is a big part of JP Morgan. They have I believe Visas, they
have so many Visa cards. Card services and auto revenue rose 15% due to higher evolving balances and lease income with cards outstanding up 9% following strong new account acquisition. So the the whole story about stable coins and credit cards or cards being antiquated. Visa cards were up 9% for JP Morgan year over year. In commercial and investment banking, the revenue was up 9%.
They have net income growth. They see revenue across the board with commercial investment banking services growing. With asset and wealth management, the revenue was up 10%, driven by strong management fees, net inflows and higher market levels. This is great stuff. If you're AJP Morgan, Chase Holder, you're happy reading through this report. There's no weaknesses here. So there's no big surprise here. We have Goldman Sachs basically
saying the same thing. Both of these companies are up big this year, 21% for Goldman Sachs. We have JP Morgan up 19%, not counting the dividend. So the big banks are doing incredibly well. Now, moving on, we get to the breaking news headline that apparently Trump has indicated he is likely to attempt firing Jerome Powell soon. This is from administration officials and this has been posted around.
It wasn't just a rumor. There are many people saying that this is being floated around as an idea. Now, of course, Jerome Powell is the Fed chair. He's the one deciding the monetary policy of what the federal funds rate is at. Now, Jerome Powell has two different mandates. One of them is maximum employment. People that want to find a job are able to find a job. The other is stable prices. So the other is dealing with inflation. The tool that he has, the federal funds rate, has impacts
on both of these. For example, if unemployment's really high, a way that you can help out with that is by lowering interest rates. Lowering interest rates heats up the economy. It's a catalyst for it. It's a stimulus for the economy. Lowering interest rates makes capital cheaper. To get a loan from the bank, you can do it with a cheaper amount of interest. So the banks are more eager to loan out money. People are more eager to take money from the banks.
People are more eager to buy new houses because houses now have lower interest rates. It spurs growth, it spurs lending, it spurs hiring, and it lowers the unemployment rate. But then you have the other half of his mandate, which is stable prices. If you were to heat up the economy as much as possible, stimulate it as much as possible, lower interest rates as much as you can, well, that has another effect. And we saw that in 2021. You have inflation starting to pick up.
Inflation grows and grows. As there's more demand than there is supply, prices become less stable, and people don't like unstable prices. So Drone Pal's trying to balance both of these things. And over the past number of years, I think he's done a decent job.
It's not a perfect job. You can certainly cast criticism, Adam, but I believe the Fed chair is one of the most difficult jobs you can do. It's also one of the easiest ones to be an armchair analyst, to look at what you could have done in certain situations better, but to look at all the data, everything holistically and make decisions based upon that. I think overall, he's done a decent job. Now, President Trump doesn't agree with that. He thinks that J pal's done a
terrible job. He's called him all sorts of names, that he's dumb. He's a slow person, you know, not an intelligent person. So he's he's kind of branding them as this bad guy that's not great at his job. He's in fact incompetent at being the Fed chair. We're also seeing these reports that President Trump indicated to Republican lawmakers on Tuesday that he is likely to attempt removing Federal Reserve Chair Jerome Powell from his job soon, according to senior administration officials.
The official said the president asked lawmakers during a meeting at the White House how they felt about firing the Fed chair, and several expressed support for attempting to oust him. Trump then suggested he could move to fire him in the near future, the official said. Now, there are a number of issues with this idea. One of them, in fact, I believe the primary issue is that the president can't fire Jerome Powell. Jerome Powell is not an employee of the president. They are separated.
In fact, they're not even supposed to be combined in any way. They're supposed to be distinct, separate entities. The president has no power to directly fire Jerome Powell. And if we look at Jay Powell's commentary on this, he seems to know his law and his rights in the role that he's in. He's asked specifically what he would do if the president decided to fire him. Some of the president's elect's advisers have suggested that you should resign. If he asked you to leave, would
you go? No. Can you follow up on it? Is it, do you think that legally he did? You're not required to leave. No. Do you believe that the president has the power to fire or demote you? And has the Fed determine the legality of a president demoting at will any of the other governors with leadership positions? Not permitted under the law. There are his answers, and they're rather definitive. He didn't leave any Gray space. There's no, you know, maybe I
would consider stepping down. The president wanted me to leave. I, I would put it under consideration. No, there is none of that. He says if the president tries to fire him, it's not going to happen and you'd continue doing his role. And when someone asks him about whether or not the president can fire him, he says it's illegally not permitted under the law. Jerome Powell intends to work the rest of his tenure.
Now, even though the president doesn't have the direct ability to fire Jerome Powell, he can wage a campaign against him and maybe oust him through roundabout ways. There's different legal opportunities to maybe try to get him out of that position without technically firing him. But most of that relies on Jerome Powell doing something extreme, something disqualifying for his position. And overall, Jerome Powell hasn't done any of that.
In fact, Jerome Powell represents the broad agreement of the overall Fed, the thousands of people working there, all the different Fed members are in overall agreement with them. Some opinions diverge on when we should lower interest rates, but he has the backing and the support of his team. So you can't really fire him based on the premise that he's way out of turn, that he's acting or behaving way outside of his role. None of that applies here. Now, just a very recent update
on this. We have President Trump here in the White House, and he's asked specifically about this news. This was just an hour ago. But he's he's, I think he does a terrible job. He's costing us a lot of money. And we fight through it. It's it's almost the country's become so successful that it doesn't have a big impact, but it does hurt people wanting to get a mortgage. People want to buy a house. He's a terrible, he's a terrible fetcher. I was surprised he was
appointed. I was surprised, frankly, that Biden put him in and extended him, but they did. So no, we're not planning on doing anything. We're very concerned. Right there he says it. We're not planning on doing anything, we're just really concerned. He seems to have completely walked back the idea of firing him, at least acting upon it.
And maybe this internal report was just incorrect, but it seems like they tossed the idea around and realized that they don't have a legal way of accomplishing what they want to accomplish. So instead of firing him, they're going to continue to brand him and paint him out to be the problem here. You can have your opinion on Jerome Powell. Maybe you agree with President Trump, maybe you don't. But this is the politics of the
situation. Now, if President Trump really tried to fire Jerome Powell, I think that'd be really bad for the markets. It would not be a good look. The markets would be better served if Jerome Powell served the rest of his term until early next year. Then they replaced him with the person they wanted. But firing him in advance would be such a bad look for the markets, it would cause a huge red day. Now finally we get into some news about Amazon.
This is a company that they have so many different projects they're working on, it's hard to keep track of it all. We have project hyper. This is very similar to Starlink, where Amazon plans to offer satellite Internet service in late 2025 S by the end of this year, there could be customers hooked up with their new satellite service. They'll have the the dishes like the Amazon ones and they can have it very similar to Starlink. Amazon is planning on offering three tiers of their broadband
service. There is the ultra compact satellite antenna the manages speeds of up to 100 megabits per second. So this is like this is like the the Starlink roam the mini, right, the ultra compact. Then you have the standard antenna speeds up to 400 megabits per second. Then you have the large model what speeds up to 1 Gigabit per second. That's incredible that you'll have satellite Internet that is far faster than broadband Internet. That's the world we're living in now.
Analysts are now saying that they see a compelling opportunity here, potentially strong long term margins given the high upfront cost. There's only two companies so far that have done this. One is SpaceX, the other is Starlink. The cost of actually making this happen is so extensive that there's not many companies in the world that have the financial situation or the investor base patient enough to make these type of investments.
You have a private company, which is Starlink, which has very long term investors, private company, but then you have Amazon, one of the rare public companies that has the investing discipline and the base to be able to wait out these long term gains. So a very unique situation for Amazon here. It gives you access to something similar to Starlink, although not the same. They don't have the Rockets they're launching themselves. They just have the satellite Internet.
Amazon has a lot of synergies that would happen with Project Kyper. There's a lot of ways that they could use Project Kyper to advance the rest of their businesses. You have data transfer for AWS clients. Project Kyper will be able to offer clients private connectivity to AWS without routing data through public Internet so they can link this tool with every other aspect of their business. And it highlights Amazon Logistics.
Amazon will be able to better manage its own logistic assets with its always on connected network. While mobile networks cover most of the USA, Satellite network could offer better connectivity on the ground and airborne
assets. Amazon could connect to its future robots and drones through Project Kyper, so if you have robots delivering packages and in places where you have spotty Internet, Amazon could have a solution there with their own Project Hyper. It's exciting to see the progress of this Project Hyper and I believe it is going to be a revenue generating and even a profit generating aspect of the company very soon. I could see next year that Amazon also has advantages in marketing and selling this
product. While Starlink has to sell it indirectly, they have to make marketing campaigns for it and word of mouth. Amazon can plaster it on their homepage. You go to Amazon.com to do your normal shopping and then you have a satellite there with Project Hyper discounted for members included as part of Amazon Prime. They'll do what they can to get you owning one of their devices. So I believe they have a lot of
ways to market this as well. We'll have to continue following it and see how this ultimately turns out. That's all for this episode. Hope you enjoyed. See you in the next one.