EUV Adoption Will Benefit From AI And EV Trends

Key Takeaways

• Accelerated adoption of single-expose and High-NA EUV technology, plus growing fab investments, position ASML for faster revenue and margin growth than market consensus expects.
  
• Rising chip demand from automotive electrification and strong services revenue growth diversify ASML's end-markets and reinforce long-term earnings stability.
  
• Reliance on a concentrated customer base and exposure to regulatory, geopolitical, supply chain, and technological disruptions threaten ASML's growth, stability, and technological leadership.

Catalysts

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

• Analyst consensus acknowledges AI-driven semiconductor demand and EUV technology ramp, but this likely underestimates just how quickly single-expose EUV adoption is accelerating-management confirmed that every new chip node and tool generation is pushing more rapid replacement of multi-patterning with single-expose, potentially unlocking dramatic litho intensity increases and upside for both revenue and margins sooner than expected.
  
• Analysts broadly agree that High-NA EUV systems will gradually contribute to growth, but customer feedback and system maturity indicate adoption risk is significantly lower than Low-NA at the same stage, suggesting High-NA may move to high-volume production at multiple customers several years ahead of previous EUV transitions, accelerating both system ASP growth and gross margin expansion.
  
• The global acceleration of fab construction for regional self-sufficiency, underscored by strong U.S., European, and Asian policy incentives, will structurally raise semiconductor capital expenditures; as the sole supplier of leading-edge EUV platforms, ASML is uniquely positioned to gain market share and drive a step-function increase in long-term order volumes and forward revenue growth.
  
• Electrification and automation trends in vehicles, especially EV and autonomous fleets, are increasing the chip content per vehicle far beyond previous forecasts, driving robust, diversified end-market demand that will buffer ASML revenues against cyclical downturns and strengthen long-term earnings predictability.
  
• The rapid expansion and higher service levels of ASML's installed base, especially with faster install and upgrade timelines on newer EUV platforms, is set to unlock a higher-than-anticipated recurring revenue stream from services and upgrades, likely exceeding current margin assumptions and providing significant support to sustained net margin improvement.

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 15.0% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 28.3% today to 33.6% in 3 years time.
• The bullish analysts expect earnings to reach €15.7 billion (and earnings per share of €41.65) by about July 2028, up from €8.7 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 29.6x on those 2028 earnings, down from 30.6x today. This future PE is lower than the current PE for the GB Semiconductor industry at 53.1x.
• Analysts expect the number of shares outstanding to decline by 0.23% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.05%, as per the Simply Wall St company report.

ASML Holding Future Earnings Per Share Growth

Risks

• Rising geopolitical tensions and evolving export controls, particularly tariffs and potential restrictions on technology supply to China and other regions, introduce substantial uncertainty to ASML's long-term ability to access key growth markets and maintain its global customer base, risking future revenue and order book growth.
  
• Increasing momentum toward onshoring and supply chain duplication in response to governmental industrial policies may fragment the semiconductor manufacturing ecosystem and reduce the scale and centralization of leading-edge fab investments, potentially impacting the volume and pace of orders for ASML's advanced lithography systems and thereby limiting its revenue and backlog expansion.
  
• Environmental regulations and accelerated focus on sustainability could impose higher operational costs across the semiconductor value chain, which may reduce fab operators' available capital for new equipment purchases from ASML and dampen the customer appetite for aggressive capex cycles, thereby exerting pressure on ASML's forward revenue growth.
  
• ASML's heavy dependence on a small group of leading-edge customers (notably TSMC, Samsung, and Intel) exposes it to risks from changes in customer capex cycles, shifts in strategy, or adverse macroeconomic events, all of which could drive significant variability in near
• and long-term revenue and net income.
  
• Technological shifts-such as the emergence of credible EUV alternatives or a breakthrough in non-traditional computing architectures-threaten to disrupt the dominance of advanced CMOS lithography and undermine ASML's technological leadership, risking declines in its market share, future margins, and the predictability of its long-term earnings trajectory.

Valuation

• The assumed bullish price target for ASML Holding is €954.88, which represents two standard deviations above the consensus price target of €766.31. 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 €970.0, 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 €46.8 billion, earnings will come to €15.7 billion, and it would be trading on a PE ratio of 29.6x, assuming you use a discount rate of 8.1%.
• Given the current share price of €683.9, the bullish analyst price target of €954.88 is 28.4% 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.