Equity Research
Rating:BUY|12-M Price Target:$2,300|Upside:+31%|Current Price: $1760
RATING & PRICE TARGET
ASML is the company that builds the machines used to print circuits onto computer chips. It is the only company in the world that has the capability to manufacture EUV (extreme ultraviolet) lithography machines required for the most advanced chips. As a result, ASML enjoys a near monopoly on its core product. The company has already raised its full-year sales guidance twice this year as AI chip related demand & memory chip demand proves stronger than expected. High-NA EUV, its next generation machine is now being deployed in a production environment at Intel proving out the technology. The biggest threat to ASML is congress passing legislation (MATCH Act) that would prevent ASML from selling its older generation machines to China. We believe the positives (AI demand, High-NA deployment) outweigh this risk and maintain a Buy rating on the stock.
COMPANY OVERVIEW & BUSINESS SEGMENTS
ASML has four businesses through which it generates revenue:
EUV Systems: These are the newest/most advanced machines. “Low-NA” (NXE) are the current generation. “High-NA” (EXE) are the newest generation of EUV machines that provide even greater precision/detail. EUV represented 48% of new-machine sales in 20 25 and rose to 66% of new-machine sales in 1Q 20 26.
DUV Systems: Older generation machines (different generations are known as ArFi, ArF dry, KrF, and i-line) typically used for less advanced nodes/chips such as those used in automotive and consumer electronics. These are referred to as “legacy nodes” by ASML. These are primarily the machines still subject to the license that ASML can sell to China.
Installed Base Management: This includes service/repairs/upgrades/add-ons related to machines that have already been sold. This revenue stream continues to grow year-over-year, reaching approximately 2.76B euros in 2Q 20 26, up from 2.0B euros in 1Q 20 25.
Other/ Licensing: A small business selling inspection tools, along with licensing some of its technology.
Breaking down sales by type of customer, ASML has historically generated more revenue from sales to “logic” chipmakers (think: TSMC, Intel) that make logic processors/chips, but “memory” chipmakers (think: SK Hynix, Samsung, Micron) that make DRAM/HBM chips commonly used in AI servers were the larger source of new-machine sales in the 1st quarter of 20 26, accounting for 51% of sales.
Breaking sales down by country, ASML once generated the majority of its revenue from sales into China. In 20 25, China accounted for 33% of ASML’s total company sales. However, ASML has taken action to restrict sales into China due to export restrictions, and expects China’s share of its total sales to decrease to approximately 20% of total sales in 20 26. Korea has become ASML’s largest market in the past year, representing 43-45% of quarterly sales in the 1st half of 20 26 as memory chipmakers continue building out AI-related capacity.
ASML doesn’t build all components of its machines internally. ASML partners with German optics company Zeiss to supply the extremely precise mirrors/lenses used in its EUV machines, as well as Cymer (which ASML acquired in 2013) for its light sources. ASML has developed this relationship with Zeiss over decades, making it difficult for potential competitors to build EUV machines.
Our view: We view ASML’s transition to greater EUV sales and eventually High-NA sales, along with a growing portion of sales from servicing existing machines, as positive for ASML’s profitability over the long-run. This is because these segments have higher margins than the older DUV machines. Management has alluded to this fact throughout the company’s earnings calls. We like that this is coming straight from the source. The main risk to margins is the fact that High-NA machines are still in their infancy and are expensive to produce.
RECENT FINANCIAL PERFORMANCE
Note: ASML no longer discloses quarterly new order totals since ~early 2026, citing that the figures were too "lumpy" (orders for EUVs are large enough that 1-2 can disproportionately impact the total). ASML now only discloses its backlog annually.
ASML has surpassed its guidance every quarter this year. In April, management guided for Q2 revenue to come in between 8.4B and 9.0B euros. Actual revenue came in at 9330 million euros, beating estimates and guidance, and profits came in at the high-end of management's guidance range. It has raised its annual 2026 sales guidance twice, from roughly 33 billion euros initially to 36-40 billion and now to 43-45 billion, and it has increased its profit margin guidance from 51-53% to 54-56%.
Management commented that the increased cost to build High-NA systems (combined with lower production yields than previous-generation machines) would pressure margins. However, ASML's overall margin has expanded year-to-date due to higher-than-expected service revenue and product mix from other machines.
(Trend over past 6 years): Revenue grew from approximately 14 billion euros in 2020 to about 32.7 billion euros in 2025, an annual growth rate of ~18.5%. EPS grew even faster, from 8.48 euros to 26.26 euros per share, or ~25% per year. Management is guiding for 2026 revenue of 43-45 billion, significantly higher than 2025.
Our view: We believe that the best evidence that AI-driven chip demand is real (and not a bubble) is that ASML has continually raised its guidance each quarter this year AND has increased its projected profit margin, rather than seeing margins decline as management warned would happen when they provided Q2 guidance in April. We feel great about this statement because it comes directly from ASML's earnings releases. The one question we have is the strength of future orders, as ASML no longer reports this figure quarterly.
GROWTH DRIVERS & STRATEGIC BETS
Advanced High-NA EUV technology: ASML has delivered 8 High-NA systems to-date. Mid-cycles they announced that certain layers for certain chips at Intel's fab in Oregon are now being produced on High-NA machines at production-level yields. The importance of this can not be understated - this proves that their High-NA machines can produce chips in a real fab setting and are not just performing well in pre-production/testing phases. The reason we are bullish on ASML even despite High-NA production starting late is because we see this announcement as enough evidence to believe that delayed timeline still was able to achieve success in production settings.
Low-NA EUV upgrade/remanufact requests: Customers continue to request upgrades and remanufacts of existing EUV machines. This allows for constant service revenue and allows sales to transition towards high-NA without immediately cannibalizing new machine sales.
Related to advanced logic chips: As TSMC, Intel, etc. transition to advanced logic nodes, they will naturally need to buy more EUV steps per chip. ASML benefits from customers simply making more advanced chips, regardless of overall output.
Limitation of sales to China and export control risks: While Chinese customers have indicated they will continue to purchase DUV systems, U.S. lawmakers are drafting legislation (the MATCH Act) that would prevent ASML from selling DUV systems to China and could even prevent ASML from providing maintenance for previously sold systems. As things stand now, this would be a significant tightening of restrictions. Previously, the United States had only restricted the sale of ASML's most advanced EUV systems. As of mid-August 2022, there are rumors that the Dutch government is being pressured to take things even further.
Memory market turning around: Memory chip prices have started to come back. This is likely due to normal cyclical swings as well as the newer, fundamental trend of AI driving memory demand.
Limited competition: Nikon and Canon are the only two companies with the technical ability to make lithography machines. However, they do not have EUV production machines and can only produce DUV machines, leaving them far behind ASML in the current node. Nikon's lithography division actually operated at a loss in its most recent fiscal year (losing ~4.6 billion yen), and its sales decreased 17% year-over-year. Alternative chip manufacturing techniques like e-beam lithography don't work on a large scale yet.
Our bullish thesis
ASML is the dominant player in the chip-making equipment industry. Its EUV technology represents a massive leap forward for the industry that cannot be replicated by ASML’s few competitors. Additionally, there are significant tailwinds from AI and memory recovering. We believe long-term China can settle around 15-20% of sales, but a full ban is possible under matched and could hurt sales, but not kill the company.
CAPITAL ALLOCATION & BALANCE SHEET
ASML has strong cash flow, although unevenly timed due to the large, lumpiness of machine deliveries from one quarter to the next. For instance, operating cash flow was negative €2.19 billion for Q1 2026 and positive €1.70 billion for Q2 2026. For the year 2025, ASML created approximately €13.8 billion of operating cash flow. It spent €1.6 billion on property and equipment. This resulted in approximately €12.3 billion of free cash flow.
R&D expenditures have increased from €2.2 billion in 2020 to €3.6 billion in 2025. As a percentage of sales, this has typically been in the range of 11-13%. A higher percentage of this spend is now being invested into High-NA and next-generation technology.
ASML also pays out significant cash to shareholders. In 2025 the company repurchased €5.95 billion of stock and paid €2.55 billion in dividends. Both of these amounts were significantly higher than 2024. The company recently announced a €1.88 per share interim dividend for 2026. ASML has minimal debt and sports a net cash position.
CEO Christophe Fouquet and CFO Roger Dassen have kept ASML on a consistent strategy for years: reinvest heavily into R&D and new foundries first. Pay a stable, growing dividend. Use excess cash for buybacks rather than large acquisitions. ASML has not made a large acquisition in years and shows no signs of changing this strategy.
Our Take: We view ASML's investment decisions as a positive. The company is not weakly generating cash and choosing to spend it. Instead, it is CHOOSING to invest a ton of cash back into the business to fund next generation technology while still giving shareholders meaningfully back through buybacks and dividends. This is all backed up by the actual cash flow statements published by ASML. The uneven quarterly cash flow is not a concern of ours given the nature of the business.
COMPETITIVE BENCHMARKING
Our view: Price-to-Earnings wise, ASML trades slightly more expensive than some peers, but this isn't because of competitive risks, quite the opposite. None of these companies have the ability to make an EUV machine, giving ASML a massive moat. We don't think this premium is fully justified given ASML's superior position, but we only have medium conviction as these peers are more directly/closely tied to the current AI/memoery boom.
MOAT & RISK ASSESSMENT
ASML’s moat is incredibly difficult to replicate. It took two decades and tens of billions of euros in investment for ASML to develop functional EUV technology. No competitor will be able to catch up in the near-term. ASML also owns thousands of patents, and has an exclusive partnership with Zeiss dating back decades to produce the precision optics required in its machines. Finally, there are enormous switching costs for customers. Chipmakers design their factories years in advance around specific ASML machines, so once a customer buys in they very rarely leave.
Key Risks
export controls: The MATCH Act bill that has been proposed in Congress would prevent the sale (and even repair) of older generation DUV machines into China, which would be a much more significant restriction than current policy.
customer concentration: The majority of ASML’s most advanced node sales are to 5 companies: TSMC, Samsung, Intel, SK Hynix, and Micron. If one of these customers reduces spending it can meaningfully alter ASML’s results.
cyclicality: The semiconductor industry experiences boom & bust cycles in capital spending. We are in a boom period due to AI-driven demand, but could see a slowdown as we did in 2023.
execution risk: If High-NA machines take longer than expected to ramp into reliable, profitable production, it could impact margins for a longer time period.
geopolitics: ASML is unfortunately caught between the politics of the Netherlands, United States, and China. This generates a background risk of political decisions that could affect the company that are outside of management’s control.
Our View
We are confident in the durability of ASML’s moat. After 20 years no serious challenger has emerged with a functional EUV machine. We are less sure about the potential for export controls on ASML’s Chinese sales, as this will depend on political decisions we can’t know until they are made. This is by far the largest unknown as we write this report.
VALUATION
Based on trailing 2025 full-year earnings, ASML trades at roughly 34.7x earnings and 25x EV/EBITDA (a valuation metric comparing company value to underlying profit). That's slightly above its own 5-year average and above its closest peers (Applied Materials, Lam Research and KLA), which trade between 21-27x on similar metrics.
However, 2026 sales growth and profit margins are expected to be stronger at ASML than most of these peers. Plus, ASML has a much stronger competitive position. For these reasons, we think ASML trades fairly and even slightly cheap compared to peers. But look forward to probable 2026-2027 earnings that are not yet priced into most analyst estimates, and it looks attractively valued.
Our view: We think ASML is roughly fairly valued today, but undervalued if you look forward. Our outlook is predicated on near-term continued growth in AI and memory, and depends on growth assumptions. So we have medium confidence in our view, rather than high confidence.
BULL / BASE / BEAR SCENARIOS
CAPITAL MARKET SIGNALS
Several large and reputable institutional investors have been buying the stock. Overall, Wall Street analysts are bullish on ASML with 6 out of 7 analysts tracked by TipRanks assigning a Buy or better rating to ASML shares while 0 assigned a Sell rating. Analyst price targets range from $950 to $2623. This wide range implies that analysts are not in agreement about how long the current boom will continue, but several major banks have recently increased their price targets by a significant margin in response to the great Q2 2026 earnings report.
Regarding company leadership, ASML expanded their board of directors to six members this year. Reaffirmed CFO and chief operating officer for another term and appointed a new Chief technology officer. Only a few board members are stepping down from the supervisory board this year, all due to their terms ending. This is not a concerning sign as it is just regular turnover.
Our view: Growing institutional ownership, mostly bullish analysts, and stable leadership are key reasons why we like this stock. The wide dispersion of analyst targets shows us there is legitimate disagreement in the market about the longevity of this cycle. This is one reason we took a moderately bullish stance on the stock and placed our target in the middle of the current range rather than at the top.
CONCLUSION & RECOMMENDATION
We maintain our BUY rating on ASML with a 1-year price target of $2,300, which is approximately 31% above the current price. ASML possesses a unique advantage that few companies can claim: a genuine and sustainable monopoly in an essential technology, supported by years of advanced orders, as well as a new catalyst for growth (High-NA EUV) that is still in its early stages, combined with robust AI-driven memory expansion.
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