The Case for ASML

ASML HOLDING N.V.

EURONEXT: ASML | NASDAQ: ASML

Sector: Technology | Industry: Semiconductor Equipment

RATING: BUY
Current Price $1,080.85	12-Month Price Target $1,253
Upside Potential: +15.9%

Investment Summary

I initiate coverage of ASML Holding N.V. with a BUY rating and a 12-month price target of $1,253, representing 15.9% upside from current levels. ASML is the world's sole supplier of Extreme Ultraviolet (EUV) lithography systems, making it the single most critical chokepoint in the global semiconductor supply chain. The market is underappreciating ASML's structural position as the indispensable enabler of the AI revolution whilst overweighting near-term cyclical and geopolitical headwinds.

I expect the convergence of three catalysts to drive multiple expansion over the next 12–18 months: (1) accelerating High-NA EUV adoption driving higher average selling prices; (2) sustained hyperscaler capital expenditure fuelling the semiconductor 'giga cycle'; and (3) margin expansion as the revenue mix shifts towards higher-margin EUV and services. My DCF analysis, using a WACC of 8.06% and terminal growth rate of 3.5%, yields a base case fair value of $1,253 per share.

VARIANT PERCEPTION: What is the market getting wrong?

The market is pricing ASML as a cyclical semiconductor equipment company facing material China headwinds. I believe ASML should be valued as a structural monopoly with 100% market share in the most critical enabling technology for the AI era. The normalisation of China revenue to ~20% is already embedded in guidance, whilst the offsetting tailwinds from US CHIPS Act, European Chips Act, and Japanese reshoring subsidies remain underappreciated. Furthermore, the embedded optionality in High-NA EUV adoption and the transition to a higher-margin services mix are not fully reflected in consensus estimates.

ASML DCF Analysis.xlsx

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Key Investment Pillars

Pillar 1: Unassailable Technological Monopoly

ASML commands 100% market share in EUV lithography and over 90% of the total lithography market. This monopoly was built over three decades and represents the most complex engineering achievement in human history. Each EUV system contains over 100,000 components sourced from 5,000+ suppliers globally, requires 40 shipping containers to transport, and demands 4-6 months for installation and calibration. The barriers to entry are effectively infinite: competitors Canon and Nikon exited the race over a decade ago, and Chinese state-backed efforts remain 10-15 years behind on EUV technology.

Pillar 2: Structural Beneficiary of the AI 'Giga Cycle'

The semiconductor industry is experiencing an unprecedented 'giga cycle' driven by AI infrastructure investment. AMD CEO Lisa Su has projected the AI hardware TAM will exceed $1 trillion by 2030. NVIDIA has communicated $3-4 trillion in cumulative AI infrastructure opportunity over the next five years. ASML sits at the apex of this value chain: every advanced AI chip from NVIDIA, AMD, or custom hyperscaler silicon must pass through ASML's lithography systems. AI chips represented less than 0.2% of wafer starts in 2024 yet generated approximately 20% of semiconductor revenue, an unprecedented level of silicon value density that directly benefits ASML.

Pillar 3: Margin Expansion Through Mix Shift

Management guides gross margins to improve from ~51% currently to 56-60% by 2030. This expansion is driven by: (1) Higher ASPs from High-NA EUV systems (~€350-400M versus ~€200M for standard EUV); (2) EUV's inherently higher gross margins (~65%) versus the corporate average; (3) Growth in Installed Base Management services, which now represent 25%+ of sales at 60%+ gross margins. Our model projects EBIT margins expanding from 31.9% in 2024 to 48% by 2032, driving substantial operating leverage.

Pillar 4: Conservative Management and Fortress Balance Sheet

ASML maintains a net cash position of approximately €3.5 billion and has demonstrated disciplined capital allocation through a combination of R&D investment, dividends, and share buybacks. The company has reduced shares outstanding by approximately 1.5% annually over the past five years. Management guidance for €44-60 billion in 2030 revenue is deliberately conservative, excluding potential upside from a GenAI-driven consumer electronics replacement cycle.

Pillar 5: Valuation Discount to Intrinsic Value

At 30x trailing P/E, ASML trades at a discount to its 5-year average of 35-40x. The current multiple fails to reflect the structural nature of its monopoly, the multi-year visibility provided by its €39B+ order backlog, or the margin expansion pathway. My DCF analysis suggests 15.9% upside to fair value in the base case, with an optimistic scenario (assuming faster High-NA adoption and AI demand exceeding forecasts) yielding upside potential of 127% to $2,452.

Business Description

What ASML Does

ASML Holding N.V., headquartered in Veldhoven, Netherlands, designs, manufactures, and services lithography systems used in the fabrication of semiconductor chips. Lithography is the critical process that 'prints' intricate circuit patterns onto silicon wafers, essentially the photographic process at the heart of chip manufacturing. ASML does not make chips; it makes the machines that make the chips.

Revenue Segments

Systems Sales (~75% of Revenue)

EUV (Extreme Ultraviolet) Systems: The crown jewel of ASML's portfolio. These machines, costing €200-350M each (rising to €350-400M for High-NA variants), are essential for leading-edge nodes (sub-7nm). ASML has 100% market share.

DUV (Deep Ultraviolet) Systems: The workhorse systems (ArFi, KrF) used for mature nodes and non-critical layers in advanced chips. ASML holds 80%+ market share.

Installed Base Management (~25% of Revenue)

A recurring revenue stream generated through service contracts, software upgrades, and performance enhancements on machines already deployed in the field. With over 5,500 lithography systems installed globally, this segment provides a stable floor for cash flow, smoothing out the cyclicality of system sales. Gross margins on services exceed 60%.

Customer Concentration

ASML's revenue is concentrated among an elite group of customers capable of operating advanced fabs. The top three customers (TSMC, Samsung, and Intel) represent approximately 54-56% of total revenue. TSMC alone accounts for approximately 32% of revenue. This concentration reflects the structural reality of the industry: only a handful of companies possess the capital and expertise to manufacture leading-edge chips.

Customer	Business Model	% of Revenue (Est.)	Strategic Importance
TSMC	Pure-Play Foundry	~32%	90%+ leading-edge share
Samsung	IDM / Foundry	~12%	Memory + Foundry
Intel	IDM / Foundry	~10%	Western reshoring leader
SK Hynix / Micron	Memory IDM	~8%	HBM for AI

Industry Overview & Competitive Positioning

The Semiconductor 'Giga Cycle'

The semiconductor industry is undergoing a structural transformation driven by AI infrastructure investment. Unlike previous cycles focused on specific end-markets (PCs, smartphones, cloud), the current 'giga cycle' is simultaneously impacting compute, memory, networking, and storage. Global semiconductor revenue was approximately $650 billion in 2024; multiple outlooks now place the $1 trillion milestone in 2028-2029, with AI responsible for the majority of upward revisions.

Key data points underpinning this structural shift:

• AI accelerator TAM projected to reach $300-350 billion by 2029-2030 (from under $100 billion in 2024)

• AI server market forecast to grow from ~$140 billion in 2024 to $800-850 billion by 2030

• HBM revenue projected to grow from ~$16 billion in 2024 to over $100 billion by 2030

• Global fab spending from 2024-2030 projected to exceed $1.5 trillion, equal to the past two decades combined

Porter's Five Forces Analysis

Force	Assessment
Threat of New Entrants	NEGLIGIBLE: Barriers are effectively insurmountable. Developing EUV technology required 30+ years, tens of billions in R&D, and a deeply integrated supply chain (Carl Zeiss, Trumpf). Chinese efforts are 10-15 years behind. Canon and Nikon abandoned the race.
Supplier Power	MODERATE: Carl Zeiss SMT is the sole supplier of critical optical components (~20% of COGS). However, ASML holds a 24.9% equity stake and has an exclusive long-term partnership, aligning incentives.
Buyer Power	LOW: Customers have zero alternatives for EUV. TSMC, Samsung, and Intel are existentially dependent on ASML to execute their roadmaps. Switching costs are infinite.
Threat of Substitutes	NEGLIGIBLE: Alternative technologies (e.g., Canon's Nano-Imprint Lithography) cannot match EUV for high-volume leading-edge manufacturing. No viable substitute exists within a decade.
Competitive Rivalry	NONE (EUV): ASML is a monopoly in EUV. In DUV, Canon and Nikon compete at the margin in legacy nodes, but ASML holds 80%+ share.

The Moat: Why Replication is Impossible

ASML's moat is arguably the deepest in the technology sector. It rests upon four interlocking pillars:

Engineering Complexity: An EUV machine fires 50,000 laser pulses per second at microscopic tin droplets to generate plasma hotter than the sun's surface, producing 13.5nm wavelength light. The mirrors inside are so smooth that if scaled to the size of Germany, the largest bump would be less than a millimetre tall.

Ecosystem Lock-In: The deeply integrated supply chain (Carl Zeiss for optics, Trumpf for lasers) took decades to build. Chipmakers design their fabs specifically around ASML's tools.

Intellectual Property: Decades of R&D and thousands of patents protect ASML's technology. The company spends over €4 billion annually on R&D.

Scale and R&D Flywheel: With 100% market share, ASML captures all EUV economics, enabling reinvestment at a pace no challenger could match.

Financial Analysis

Historical Performance (2015-2024)

ASML has delivered exceptional growth and profitability, compounding revenue at a 16% CAGR since 2015 and 19% CAGR over 2020-2024. This growth has been accompanied by significant margin expansion, with gross margins improving from 44% in 2015 to 51-52% currently, and EBIT margins expanding from ~24% to ~32%.

Metric	2019	2020	2021	2022	2023	2024
Revenue ($M)	13,233	15,961	22,013	22,306	29,804	30,576
Gross Margin	44.7%	48.6%	52.7%	50.5%	51.3%	51.3%
EBIT Margin	23.6%	29.0%	35.1%	30.7%	32.8%	31.9%
Net Margin	21.9%	25.4%	31.6%	26.6%	28.4%	26.8%
EPS ($)	6.90	9.70	16.98	14.90	21.53	20.83
ROE	21.4%	26.9%	49.0%	59.4%	70.4%	47.4%

Source: Company filings, ASML

Forward Projections (2025-2032)

My model projects revenue growing from $30.6 billion in 2024 to $68.6 billion by 2032, representing a CAGR of 10.6%. Key assumptions include: (1) 19.7% revenue growth in 2025 driven by EUV backlog conversion; (2) Sustained growth of 8% in terminal years 2030-2032 as the market matures; (3) EBIT margin expansion from 31.9% to 48% by 2032, reflecting mix shift to EUV/High-NA and operating leverage.

Metric	2025E	2026E	2028E	2030E	2032E	CAGR
Revenue ($M)	36,600	43,810	56,030	60,513	68,634	10.6%
EBIT Margin	34.7%	36.5%	42.0%	46.0%	48.0%	+16.1pp
UFCF ($M)	10,979	13,328	19,294	25,233	30,195	15.5%

Source: DCF model

Valuation

DCF Methodology

I employ a discounted cash flow (DCF) analysis with an 8-year explicit forecast period (2025-2032) followed by a terminal value calculation. My base case yields a fair value of $1,253 per share, representing 15.9% upside from the current price of $1,080.85.

Key Assumptions

Input	Value & Rationale
WACC	8.06% (Risk-free rate: 4.3%; Beta: 0.85; ERP: 4.5%). Beta adjusted downward to reflect ASML's lower cyclicality versus peers due to monopoly position and order backlog visibility.
Terminal Growth Rate	3.5% Conservative relative to semiconductor industry secular CAGR of 7-10%. Justified by ASML's role as critical infrastructure for Moore's Law continuation, AI demand, and EV/IoT proliferation.
Revenue CAGR (2024-32)	10.6% Driven by High-NA EUV adoption, AI infrastructure demand, and services growth. Conservative versus management's 2030 guidance midpoint.
Terminal EBIT Margin	48% Reflects mix shift to higher-margin EUV/High-NA tools and services. Below management's 56-60% gross margin guidance, implying additional conservatism.

Scenario Analysis

Scenario	Fair Value	Upside/(Downside)	Key Assumptions
Conservative	$739	(31.6%)	WACC 9.06%; TGR 3.0%
Base Case	$1,253	+15.9%	WACC 8.06%; TGR 3.5%
Optimistic	$2,452	+126.9%	WACC 7.06%; TGR 4.0%

Sensitivity Analysis

The table below illustrates sensitivity of fair value to changes in WACC and terminal growth rate:

TGR → / WACC ↓	2.5%	3.0%	3.5%	4.0%	4.5%
6.5%	$1,527	$1,705	$1,943	$2,275	$2,773
7.5%	$1,205	$1,308	$1,438	$1,605	$1,827
8.06%	$1,075	$1,155	$1,253	$1,374	$1,530
9.0%	$908	$963	$1,027	$1,104	$1,198
10.0%	$778	$815	$859	$910	$970

Source: DCF model. Current price: $1,080.85. Highlighted cell represents base case.

Investment Risks

Geopolitical Risk (HIGH)

US-led export controls have already restricted ASML from selling EUV systems to China (since January 2020) and advanced DUV immersion systems (since June 2023). Further tightening of restrictions on legacy DUV systems could materially impact revenue, as China accounted for 41% of 2024 revenue. Mitigation: Management guidance already incorporates normalisation of China to ~20% of revenue by 2025. The offsetting tailwinds from CHIPS Act, European Chips Act, and Japanese reshoring subsidies provide structural demand from the West.

Customer Concentration (MEDIUM)

ASML relies heavily on three customers (TSMC, Samsung, Intel) representing ~54% of revenue. If a major customer delays node transitions or cuts capex (as Intel has done historically), ASML's order book suffers immediately. Mitigation: These customers have no alternative supplier for EUV. Their long-term roadmaps are existentially dependent on ASML, creating mutual interdependence rather than buyer power.

Cyclicality (MEDIUM)

The semiconductor industry remains cyclical. A global recession leading to reduced consumer electronics demand would eventually trickle up to delayed equipment orders. Mitigation: The structural AI 'giga cycle' is dampening traditional cyclicality. ASML's €39B+ order backlog provides 2+ years of revenue visibility, and the transition to advanced nodes is non-deferrable for customers seeking to compete.

Technological Disruption (LOW)

Alternative technologies like Canon's Nano-Imprint Lithography or 3D stacking could theoretically reduce lithography intensity. Chinese state-backed efforts (SMEE) continue to pursue domestic alternatives. Mitigation: No alternative technology can match EUV for high-volume leading-edge manufacturing within a decade. Chinese efforts are estimated to be 10-15 years behind on EUV. ASML is already commercialising next-generation High-NA and developing Hyper-NA, extending its lead.

Catalysts & Timeline

Timing	Catalyst	Impact
Q1 2026	High-NA EUV volume ramp	Higher ASPs ($350-400M/tool) driving revenue and margin expansion
H2 2026	TSMC A16 (1.6nm) production	Validates High-NA EUV demand and extends ASML's technology runway
2026-2028	AI infrastructure buildout	Sustained demand for leading-edge capacity from hyperscalers
Ongoing	Services mix increase	Recurring revenue growth at 60%+ gross margins
Potential	Easing of China restrictions	Upside catalyst not in base case; could add 10-15% to estimates

ESG Considerations

Environmental

ASML's lithography systems are highly energy-intensive, though the company has committed to science-based emission reduction targets. EUV technology paradoxically enables more energy-efficient chips by enabling smaller transistors that consume less power. ASML is investing in reducing the energy consumption of its tools and has committed to carbon neutrality in its operations by 2040.

Social

ASML employs over 42,000 people globally and is a critical anchor employer in the Netherlands. The company maintains high employee satisfaction scores and invests heavily in workforce development given the scarcity of engineering talent in its domain. Supply chain labour practices are monitored through responsible sourcing programmes.

Governance

ASML maintains strong governance with a majority independent Supervisory Board. Executive compensation is tied to long-term value creation metrics including TSR, EPS growth, and strategic milestones. The company has a two-tier board structure typical of Dutch corporations, with clear separation between executive and supervisory functions.

Conclusion

ASML Holding N.V. represents a compelling investment opportunity at the intersection of structural monopoly, technological leadership, and secular growth tailwinds. The company's 100% market share in EUV lithography makes it the single most critical chokepoint in the global semiconductor supply chain, an indispensable enabler of the AI revolution.

At current levels, the market is pricing ASML as a cyclical semiconductor equipment company when it should be valued as a structural monopoly with unparalleled visibility and margin expansion potential. Our DCF analysis yields a base case fair value of $1,253, representing 15.9% upside, with the optimistic scenario suggesting over 125% upside if AI demand exceeds forecasts and High-NA adoption accelerates.

I initiate coverage with a BUY rating and 12-month price target of $1,253. ASML belongs in the core holdings of any long-term, growth-oriented portfolio as a cornerstone position in the technology sector.

Appendices

Appendix A: DCF Model Summary

The complete DCF model is available in the accompanying Excel file (ASML DCF Analysis.xlsm). Key outputs:

Item	Value
PV of Explicit Period FCF	$111.96 billion
Terminal Value	$685.36 billion
PV of Terminal Value	$368.64 billion
Enterprise Value	$480.59 billion
(+) Cash	$13.20 billion
(-) Debt	$5.24 billion
Equity Value	$488.55 billion
Diluted Shares Outstanding	390 million
Fair Value per Share	$1,252.70

Appendix B: Sources & References

Company & Financial Data:

• ASML Annual Report 2024

• ASML Investor Day Presentation 2024

• ASML Q3 2025 Earnings Release and Transcript

• Author's DCF Model (ASML_DCF_Analysis.xlsm)

Industry Research:

• PwC, 'Semiconductor and Beyond 2026' (Full Report)

• Creative Strategies, 'The Semiconductor Gigacycle' (December 2025)

• Tom's Hardware, 'Semiconductor Industry Enters Giga Cycle' (December 2025)

Investment Research:

• 'ASML: The Monopoly Europe Built and the World Can't Replace' (October 2025)

• 'ASML: Entering a 10-Year Virtuous Cycle' - Vasileios Prassas

• 'ASML: The Most Innovative Company in the World' - Crack the Market (March 2025)

• 'ASML Deep Dive' - TacticzHazel Value Investing (October 2025)

• 'The Lithography Monopoly: Why ASML Remains the Bottleneck' - Ethan Cross (December 2025)

• 'ASML's China Risk' - Best Anchor Stocks

• 'The Real Winners of the AI Spending Boom'

• RC Equity Research Report Essentials

Industry Data:

• AMD CEO Lisa Su, November 2025 Analyst Day Presentation

• NVIDIA Q2 2026 Earnings Call Transcript

• KPMG Global Semiconductor Executive Survey Q4 2024

Appendix C: Glossary of Terms

Term	Definition
EUV	Extreme Ultraviolet Lithography. Technology using 13.5nm wavelength light to print circuit patterns for sub-7nm chip nodes.
DUV	Deep Ultraviolet Lithography. Mature technology using 193nm or 248nm wavelength light for larger chip nodes.
High-NA EUV	High Numerical Aperture EUV. Next-generation lithography with improved resolution enabling 2nm and 1.6nm nodes.
Node	Manufacturing process generation (e.g., 7nm, 5nm, 3nm). Smaller nodes enable more transistors and better performance.
ASP	Average Selling Price. The average revenue generated per unit sold.
Foundry	A company that manufactures chips designed by other companies (e.g., TSMC).
IDM	Integrated Device Manufacturer. A company that designs and manufactures its own chips (e.g., Intel, Samsung).
HBM	High Bandwidth Memory. Stacked memory technology critical for AI accelerators.
TAM	Total Addressable Market. The total market demand for a product or service.