Eight Unanimous Buys: Why ASML’s Blowout Quarter Exposes The Unbreakable AI Chip Bottleneck
(SeaPRwire) – By: Reginald Vance
The market has spent months panicking about two things. First, that AI chip demand is overblown. Second, that ASML can’t scale fast enough to meet actual demand. Investors have priced in a potential correction for a year. The 40x forward P/E on ASML stock has been called insane by bears. They argue no company deserves that multiple for this long. I talked to three semiconductor foundry CFOs last month. All told me the same thing. They are willing to pay 20% over list price to lock in ASML machine deliveries two years out. No one can build capacity fast enough, and no one can compete with ASML on EUV.
ASML reported Q2 results on July 15 that beat every estimate. Net sales hit €9.326 billion, up 21.2% year over year. That beat management’s own €8.4–€9.0 billion guidance and analyst consensus of €8.8 billion. EPS came in at $8.68 per ADR, 9.6% above the $7.92 analyst estimate. Gross margin hit 54%, two full points above the guided range. The Installed Base Management segment beat guidance by nearly €300 million, driving the margin beat. EUV system sales hit €3.8 billion for the quarter. ASML recorded revenue from one High-NA EUV system during the quarter. Logic made up 51% of system sales, memory made up 49%. ASML raised 2026 full year sales guidance to €43–€45 billion, up from the previous €36–€40 billion range. Gross margin guidance for 2026 now sits at 54%–56%, up from 51%–53%. At the midpoint, that equals 35% growth over 2025’s €32.7 billion in sales. The company will expand Low-NA EUV capacity 30% in 2027 to 78–80 units from 65 in 2026. That expanded 2027 capacity is already almost fully booked. It is studying another 30% capacity increase for 2028. Deep ultraviolet immersion capacity will get the same percentage increases in 2027 and potentially 2028. Memory system sales are set to rise more than 75% this year, driven by HBM and advanced DDR builds. Intel already uses High-NA EUV in production for selected 18A Panther Lake layers. Wall Street currently has eight unanimous buy ratings, no holds or sells. The average price target is $2421, implying 38.5% upside from the current $1748 price. ASML is up 69% year to date and 145% over the past 12 months.
The first thing most people miss is ASML’s cash flow from service. The installed base business has higher margins than new system sales. It grows steadily as more ASML machines enter fabs around the world. That recurring revenue stream de-risks ASML’s business far more than most investors understand. It also gives ASML a steady stream of cash to fund capacity expansion. It does not need to dip heavily into equity markets to fund growth. All the extra demand for EUV has nowhere else to go. There is no second source for advanced EUV lithography. Any foundry that wants to build advanced AI chips or high bandwidth memory has to buy from ASML. The capacity expansion plans ASML announced just confirm that demand is far outstripping existing supply. This is not a temporary AI boom. It is a multi-year capital build that will lock ASML’s monopoly for at least the next decade. No other competitor will have a viable High-NA EUV product before 2030. The 40x forward P/E looks steep at first glance. It is priced off 49% expected earnings growth this year. That multiple is justified by the backlog. Every new capacity slot ASML adds is sold out before construction finishes. DRAM makers are scrambling to build HBM capacity to feed GPU vendors. AI accelerator logic makers are also adding capacity as fast as they can. Neither can move forward without more ASML EUV tools. The consolidation of the semiconductor equipment space is already complete. ASML owns the only bottleneck that matters for next generation chip production. Smaller equipment vendors will get absorbed or pushed out of the high-margin advanced node market over the next five years.
Author bio: Reginald Vance, venture partner specializing in semiconductor valuation and advanced materials.