ASML (NASDAQ: ASML) is the world’s main producer of lithography methods, that are used to optically etch circuit patterns onto silicon wafers. Many of the world’s main chipmakers use its deep ultraviolet (DUV) lithography methods to fabricate their older and bigger chips.
The Dutch tech big can also be the one producer of maximum ultraviolet (EUV) lithography methods, 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 methods to supply 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 almost 40% this 12 months — however is it value shopping for earlier than its subsequent earnings report on Oct. 15?
In 2023, ASML’s web gross sales surged 30% because it shipped extra DUV and EUV methods, its service revenues rose, and extra chipmakers ramped up their manufacturing of AI-oriented chips. It additionally regularly rolled out its newest “high-NA” EUV methods, that are used to supply even smaller and denser chips than its present era of “low-NA” EUV methods.
However in 2024, its web gross sales solely rose 3%, its gross margin flatlined, and its earnings per share (EPS) fell 3%. That slowdown was attributable to powerful comparisons to the AI market’s preliminary development spurt, mushy demand for non-AI chips, and tighter restrictions on its gross sales of higher-end DUV methods to China (the place it is already barred from promoting EUV methods). Its present prospects additionally ordered fewer new methods as they labored by way of their present inventories.
Nevertheless, most of that slowdown occurred within the first half of 2024. Over the previous 4 quarters, its web 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%
Information 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 methods. For the total 12 months, it expects its web 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 buyers 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 12 months. From 2024 to 2027, they count on its income and EPS to develop at a compound annual development charge (CAGR) of 10% and 16%, respectively.
ASML’s future seems shiny, however a number of points may cap its near-term beneficial properties. First, its inventory is not low-cost at 34 instances subsequent 12 months’s earnings. The bulls will argue that its dominance of the lithography market justifies its larger valuation, however the bears will declare that an excessive amount of AI hype has been baked into its inventory value. Subsequently, any near-term hiccups may spook the bulls and sink its inventory.
Second, ASML faces a variety 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 parts 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 larger tariffs.
All that stress may throttle the expansion of the worldwide semiconductor market and drive ASML to rein in its near-term gross sales forecasts. On the similar time, ASML nonetheless wants to extend its spending to ramp up its manufacturing of its high-NA EUV methods. 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 may be 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 Units, 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.
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