ASML (NASDAQ: ASML) is the world’s main producer of lithography techniques, that are used to optically etch circuit patterns onto silicon wafers. A lot of the world’s main chipmakers use its deep ultraviolet (DUV) lithography techniques to fabricate their older and bigger chips.
The Dutch tech large can be the one producer of utmost ultraviolet (EUV) lithography techniques, that are required to fabricate the world’s smallest and densest chips. The entire world’s main foundries — together with Taiwan Semiconductor(NYSE: TSM), Samsung, and Intel (NASDAQ: INTC) — use ASML’s EUV techniques to provide their most superior chips.
Picture supply: Getty Photographs.
ASML’s monopolization of that essential expertise makes it a linchpin of the semiconductor market. The market’s bullish enthusiasm for synthetic intelligence (AI)-oriented chips fueled its rally of practically 40% this yr — however is it value shopping for earlier than its subsequent earnings report on Oct. 15?
In 2023, ASML’s internet gross sales surged 30% because it shipped extra DUV and EUV techniques, its service revenues rose, and extra chipmakers ramped up their manufacturing of AI-oriented chips. It additionally progressively rolled out its newest “high-NA” EUV techniques, that are used to provide even smaller and denser chips than its present technology of “low-NA” EUV techniques.
However in 2024, its internet gross sales solely rose 3%, its gross margin flatlined, and its earnings per share (EPS) fell 3%. That slowdown was brought on by robust comparisons to the AI market’s preliminary development spurt, gentle demand for non-AI chips, and tighter restrictions on its gross sales of higher-end DUV techniques to China (the place it is already barred from promoting EUV techniques). Its present prospects additionally ordered fewer new techniques as they labored by means of their present inventories.
Nevertheless, most of that slowdown occurred within the first half of 2024. Over the previous 4 quarters, its internet gross sales and EPS elevated by the double digits as its gross margins expanded once more. That restoration was largely pushed by AI tailwinds for the DRAM reminiscence chip market.
Metric
Q2 2024
Q3 2024
This autumn 2024
Q1 2025
Q2 2025
Web Gross sales Progress (YOY)
(9.5%)
11.9%
28%
46.4%
23.2%
Gross Margin
51.5%
50.8%
51.7%
54%
53.7%
EPS Progress (YOY)
(18.7%)
9.8%
31.5%
92.9%
47.1%
Knowledge supply: ASML. In euros. YOY = 12 months-over-year.
ASML achieved that restoration even because it grappled with the Trump administration’s unpredictable tariffs, tighter export curbs, and the upper prices of rolling out its high-NA EUV techniques. For the complete yr, it expects its internet gross sales to rise 15% as its gross margin rises from 51.3% to about 52%. That shiny outlook, together with the accelerating demand for extra AI-related chips, drove extra traders again towards ASML as a balanced play on the semiconductor market.
Analysts count on ASML’s income and earnings per share (EPS) to rise 14% and 25%, respectively, this yr. From 2024 to 2027, they count on its income and EPS to develop at a compound annual development price (CAGR) of 10% and 16%, respectively.
ASML’s future seems shiny, however a couple of points might cap its near-term positive factors. First, its inventory is not low-cost at 34 occasions subsequent yr’s earnings. The bulls will argue that its dominance of the lithography market justifies its increased valuation, however the bears will declare that an excessive amount of AI hype has been baked into its inventory value. Due to this fact, any near-term hiccups might spook the bulls and sink its inventory.
Second, ASML faces a whole lot of these near-term challenges. The Chinese language authorities simply tightened its import controls on Nvidia‘s (NASDAQ: NVDA) AI chips and issued new export restrictions on its uncommon earth components used to fabricate semiconductors. The U.S. Senate additionally handed new export limits on Nvidia’s and AMD‘s (NASDAQ: AMD) AI chip gross sales to China, whereas President Donald Trump simply threatened China with even increased tariffs.
All that stress might throttle the expansion of the worldwide semiconductor market and power ASML to rein in its near-term gross sales forecasts. On the identical time, ASML nonetheless wants to extend its spending to ramp up its manufacturing of its high-NA EUV techniques. If it warns of slowing gross sales and rising prices, its inventory will stumble.
I’ve owned ASML’s inventory for greater than 4 years, however I would not rush to build up extra shares forward of its third-quarter earnings report. As a substitute, it is perhaps smarter to see if it addresses its near-term challenges and revises its steering throughout that report earlier than paying a premium valuation for its inventory.
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Leo Solar has positions in ASML. The Motley Idiot has positions in and recommends ASML, Superior Micro Gadgets, Intel, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Idiot recommends the next choices: brief November 2025 $21 places on Intel. The Motley Idiot has a disclosure coverage.
