ASML (NASDAQ:) holds a monopoly on foundational AI technology, making it the most structurally sound tech investment you can own. Its Extreme Ultraviolet (EUV) lithography machines are the only ones capable of printing AI-capable circuitry, and they are in high demand.
Evidence of its strength was seen in the company’s Q2 results and guidance update, released July 15. The report highlighted not only demand but also a business model designed for the long term. While new EUV machines are the story today, those sales will cool over time. The long-term opportunity is the persistent upgrade cycle built into the technology, which means software and hardware upgrades and the services to implement them.
ASML’s machine bodies are bolted to the floors of semiconductor foundries globally, foundry capacity is expanding rapidly, and each machine body equates to Installed Base volume. As it stands, the Installed Base accounted for 30% of net revenue, growing 11% sequentially and 5% year-over-year, with a wide moat around the business.
There is an up-and-coming competitor technology developed by Canon, but it’s not slated for anything like commercial-scale availability until 2028 and, even then, isn’t truly a viable competitor. Canon’s Nanoimprint technology, which stamps circuits onto silicon, produces similarly fine circuitry but also a much higher error rate, making it unsuitable for advanced computing.
ASML Signals Momentum Shift in Lithography Markets
ASML had a robust quarter, with revenue growing by 21% in Q2. The topline outpaced the consensus by approximately 450 basis points (bps), on strength in new equipment and upgrades. The company sold 86 new machines, up 28%, while used equipment sales declined. Gross margin, another critical factor, expanded by 1,000 bps due to leverage, including that provided by Installed Base management.
Margin is another critical factor for this investment, as the company has maintained a healthy gross margin in the mid-50% range and is improving due to sales strength and Installed Base growth. The only bad news is that the net margin contracted, leaving earnings up by only 5.8%, but there is a silver lining. The company is investing in technology and capacity to meet the new demand, signaling the cycle’s durability.
Guidance is yet another signal of this company’s strength, position, and momentum within the industry. The company issued a Q3 revenue target more than 1,000 bps above expectations, lifted its full-year outlook, and signaled a change to its long-term outlook. The caveat is that the change won’t be revealed until next year at the subsequent investor day event. Until then, ASML forecasts Q3 revenue to grow more than 23% sequentially and 31% year-over-year (YOY), which may underestimate demand for its products.
Analysts Pound Table for Top-Pick ASML
Analysts responded vigorously to ASML’s release, issuing numerous commentaries to strengthen their narrative. The group noted the considerable top- and bottom-line strengths, Installed Base growth, Installed Base management strength, and the direct translation into capacity expansion.
Activity included several price target increases, aligning with trends pushing the high end of the range. The consensus price target of $1,891 reported by MarketBeat in mid-July offered only a modest upside, but the high-end added nearly 40% to it. The likely outcome is that analyst trends remain robust through year’s end and into 2027, underpinning the stock price rally.
Capital returns are a factor in this stock’s ownership, including dividends and share buybacks. The dividend is little more than a token, yielding approximately 0.6% as of mid-July, but it is reliable, the distribution increases annually, and it is compounded by share count reductions. Q2 activity aided a nearly 1% trailing 12-month decline, a pace that is likely to continue in upcoming quarters.
Stock price action following the earnings release told a mixed story. ASML jumped more than 3% premarket before giving back the gains, though it held support near $1,775, coincident with the 30-day exponential moving average.
This suggests short-term buyers are active and defending support, but they haven’t yet taken decisive control. A push through the existing high near $2,000 is the level to watch—clearing it would likely trigger fresh capital inflows. Assuming new highs are set, the next resistance target is in the $2,250 region.
ASML’s biggest risks are geopolitical. Restrictions, bans, and actions by China against Taiwan pose an existential threat, potentially disrupting the business. U.S. legislation currently under review could keep the company from even servicing equipment already placed in China. Customer concentration is focused on Taiwanese manufacturers, including Taiwan Semiconductor Manufacturing (NYSE:), as well as Intel (NASDAQ:) and Samsung. Valuation is also a risk, pricing in perfection and flawless execution.
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