Accelerating Digital Trends Will Boost EUV And High-NA Adoption

Key Takeaways

• Accelerating AI and tech sector growth, plus emerging applications, will drive sustained, above-expected demand for ASML's advanced lithography tools and service contracts.
  
• Expanding global partnerships, tech sovereignty initiatives, and industry consolidation will enhance ASML's pricing power, margins, and long-term earnings visibility.
  
• Geopolitical tensions, heavy customer concentration, high R&D needs, and shifting market dynamics threaten ASML's long-term revenue, margin stability, and addressable market.

Catalysts

Provides lithography solutions for the development, production, marketing, sales, upgrading, and servicing of advanced semiconductor equipment systems.

• Analyst consensus expects strong EUV and High-NA demand from AI and leading-edge nodes, but this may dramatically understate the magnitude and duration of growth as AI, cloud, and data center secular drivers are triggering a multi-year, cross-cycle acceleration in wafer starts and node transitions that could push ASML revenues well above historical peaks and extend high-margin product cycles further into the decade.
  
• Analysts broadly highlight recurring service and upgrade revenues as improving margins and earnings stability, but the rapid expansion and aging of the installed base will likely drive a torrential increase in ultra-high-margin, high-attachment service contracts, creating a structural margin lift that is not fully reflected in current estimates for net margin and earnings power.
  
• Adoption of next-generation EUV and High-NA platforms is not just a replacement cycle but will enable frontiers of chip innovation for AI, automated mobility, and green energy systems, allowing ASML to monetize surging demand from entirely new verticals, significantly increasing long-term total addressable market and revenue.
  
• Global onshoring and sovereign semiconductor initiatives are only beginning to flow through the order book; as governmental strategic priorities around tech sovereignty and supply chain resilience escalate, ASML stands to win years of outsized, visibility-rich system orders and backlog build, cementing multi-year revenue growth and de-risking near
• and medium-term cash flows.
  
• Intensifying industry consolidation and R&D cost inflation in chip manufacturing will force more foundries and IDMs to partner deeply and exclusively with ASML, amplifying its pricing power, accelerating high ASP product adoption, and structurally sustaining superior gross margins and returns on capital for the long term.

ASML Holding Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on ASML Holding compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming ASML Holding's revenue will grow by 12.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 29.3% today to 33.2% in 3 years time.
• The bullish analysts expect earnings to reach €15.1 billion (and earnings per share of €40.63) by about July 2028, up from €9.4 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 29.3x on those 2028 earnings, up from 25.0x today. This future PE is lower than the current PE for the GB Semiconductor industry at 51.0x.
• Analysts expect the number of shares outstanding to decline by 1.48% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.07%, as per the Simply Wall St company report.

ASML Holding Future Earnings Per Share Growth

Risks

• Rising geopolitical tensions and the threat of increased export restrictions, particularly around China and advanced technologies like EUV, are leading to customer order cancellations (€1.4 billion Deep UV and applications adjustment in Q2) and could materially limit ASML's addressable market, directly impacting long-term revenue growth.
  
• ASML's customer concentration risk, especially reliance on a few major players such as TSMC, Samsung, and Intel, makes the company vulnerable to capex delays and more cautious investment amid elevated macroeconomic and trade uncertainty, raising the risk of unpredictable revenue and earnings volatility.
  
• Sustained high R&D and capex requirements for continued leadership in EUV and High NA technology, combined with the risk of elongating product cycles and slower incremental returns, could compress ASML's operating margins over the long term.
  
• As lithography system productivity improves, customers increasingly satisfy capacity needs with fewer, higher-performing systems, which while supporting average selling prices, may ultimately constrain unit volume growth and installed base expansion, posing a structural risk to revenue growth if wafer start growth slows due to demographic or market trends.
  
• Industry cyclicality, potential for supply-demand mismatches after recent heavy investment, and the trend toward vertical integration or alternative manufacturing technologies (e.g., nanoimprint lithography) could reduce demand for ASML's tools, impacting both revenue and net margin stability over time.

Valuation

• The assumed bullish price target for ASML Holding is €946.94, which represents two standard deviations above the consensus price target of €754.32. This valuation is based on what can be assumed as the expectations of ASML Holding's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €950.0, and the most bearish reporting a price target of just €500.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be €45.5 billion, earnings will come to €15.1 billion, and it would be trading on a PE ratio of 29.3x, assuming you use a discount rate of 8.1%.
  
• Given the current share price of €606.6, the bullish analyst price target of €946.94 is 35.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.