Going Into Earnings, Is ASML Stock a Buy?

ASML Holding will publish its third-quarter results on Oct. 16. Here’s what we think of ASML stock.

Key Morningstar Metrics for ASML Holding

• Fair Value Estimate: $990.00
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High

Earnings Release Date

• Wednesday, Oct. 16

What to Watch for in ASML Holding’s Q3 Earnings

• The threshold for orders ASML must meet to reach the midpoint of its 2025 guidance is not too high. Last quarter, orders came at €5.6 billion, so as long as they remain in the €4 billion range for this quarter and next, the midpoint should be achievable. For 2025, we sit at €36.7 billion in revenue now, compared with guidance of €30 billion-€40 billion.
• A normalization of orders and revenue in China is expected, but it’s still difficult to tell when exactly it will come.
• Investors and analysts will also try to get more answers on how Intel’s INTC problems can affect ASML. Intel is likely the firm’s third-biggest client, and they recently postponed opening a fab in Germany, which is EUV-intensive. In the long term, we are not very concerned. If Intel has more problems and postpones or cancels fabs, someone else would eventually grab that opportunity.
• Overall, the long-term picture remains strong, and we think shares offer a good buying opportunity.

Fair Value Estimate for ASML Holding

We raised our fair value estimate for ASML on June 5 to $990 per share as we increased our forecasts for its long-term revenue and EBIT. While our 2025 estimates remain unchanged, we raised our long-term revenue forecasts due to higher confidence in the firm’s long-term prospects and better certainty of high-NA EUV adoption. Our fair value represents a 2025 P/E ratio of 31.5 times.

Demand for ASML’s EUV and DUV equipment remains strong, with logic and memory fabs having announced new expansion projects until 2030. We expect the firm will come at the high end of its long-term guidance, given its prior targets were set in 2022, before the adoption of artificial intelligence. Our fair value estimate represents a forward price/earnings ratio of 42 times for 2024 and 32 times for 2025. For the next decade, we model a 10% compounded annual growth rate in revenue, with EBIT margins expanding from 31% in 2023 to 45% in our terminal year.

Economic Moat Rating

We assign ASML a wide moat, supported by intangible assets, cost advantages, and switching costs. The company is the world’s largest supplier of photolithography machines for semiconductors, with around 90% market share. It enjoys a wide technology gap with competitors Nikon and Canon, with large investments in research and development that should continue widening ASML’s moat and act as a barrier to entry.

Intangibles come from decades of internal know-how and long-term collaboration with firms like Carl Zeiss and scientific research institutes. Switching costs come from software and servicing of the machines, as fabrication plants cannot afford unplanned downtime, since this can cost millions of dollars.

Risk and Uncertainty

We assign ASML a High Uncertainty Rating. Its machines represent a large share (20%-25%) of a semiconductor foundry’s capital expenditure. In most industries, customers will try to cut costs of their highest-ticket items, so ASML needs to provide unique productivity and service value. It manages this risk through improvements in wafer-per-hour productivity and providing additional value every time it charges for a new service. As long as the firm can keep providing these technological and productivity improvements, we believe this risk is under control, but it faces constant pressure to deliver, or clients will try to reduce their dependence on lithography.

Trade tensions between the United States and China are another headwind. Because ASML machines contain US parts, the US has effective powers to limit ASML exports to China or any other country. Restrictions have become stricter since 2023, with ASML unable to sell some of its immersion DUV machines. If export controls keep increasing, it will put long-term pressure on the firm’s top line.

Supply chain management is also vital. If a critical parts supplier like Carl Zeiss saw a manufacturing disruption, this would create a bottleneck for ASML. Historically, the company has displayed good supply management abilities. The cyclical nature of the semiconductor industry adds to the uncertainty. ASML machines cost up to €300 million, so clients will postpone purchases during economic slowdowns. Customer concentration is high, with Taiwan Semiconductor TSM, Samsung, and Intel representing a large amount of revenue.

ASML Bulls Say

• ASML’s machines last more than 30 years, providing recurring service revenue. The switching costs and intangible assets required to displace these machines are enormous, with no competitor coming even close to ASML’s technological leadership
• As lithography machines get more complex, switching costs and service revenue potential strengthen. ASML has the potential to improve gross margins in the next decade.
• We expect ASML to outpace the growth of the overall semiconductor market, thanks to its strong competitive position. We expect low-double-digit annual revenue growth in the next decade.

ASML Bears Say

• ASML sells a low-volume, high-price product. Lithography machines represent a high proportion of customer costs, so if the company fails to innovate, customers will look for alternatives.
• If controls on exports to China keep worsening, ASML’s growth trajectory will suffer. The firm has no effective control over this risk, as it largely depends on US government decisions.
• The cyclical nature of the semiconductor industry adds to ASML’s risk profile. Also, the firm depends on a limited number of suppliers for certain components, so any disruption will create bottlenecks and delays.