Yesterday, ASML released its Q2 results, and while it exceeded consensus estimates on all metrics, shares sold off by more than 10% in the following trading session, driven by management’s cautious commentary regarding its 2026 guidance due to limited visibility and uncertainty. As a result, ASML shares are now up just 6% YTD and still down almost 30% over the last year, well underperforming the market and most of its semiconductor peers.
Additionally, ASML shares now trade at just 26 times this year’s EPS, which, historically, is an exceptionally low earnings multiple to pay for ASML shares. Meanwhile, its long-term outlook remains as strong as ever, and its financial performance continues to exceed expectations. This is still one of the highest-quality and mission-critical businesses you’ll ever find, yet, after last week’s sell-off, you can acquire shares at one of the most attractive valuations in years.
So, does this overreaction create a compelling buying opportunity, or is the skepticism justified, and is it really time for some caution? Let me take you through all the key numbers and developments before updating my financial projections and target price.
Let’s delve in!
ASML delivers an excellent Q2 earnings report
Top-line results + order intake
ASML management has a history of guiding conservatively, and this time was no different.
Once again, ASML surpassed consensus estimates and delivered quarterly results that either fell at the high end of its own guidance or exceeded it. ASML demonstrated that demand for its high-end manufacturing equipment remained exceptionally strong in the first half of 2025, showing no signs of weakness.
ASML reported Q2 revenue of €7.7 billion, up 23% YoY, coming in at the high end of its guided range (€7.2 billion to €7.7 billion) and surpassing the consensus estimates by €150 million. This was also considerably better than what I expected.
This outperformance was in large part driven by another quarter of outperformance in ASML’s services operations (by ASML referred to as its installed base), which includes revenue from services, upgrades, maintenance contracts, and spare parts for its existing machines already in use at customer sites.
For reference, these service revenues represent a high-quality revenue stream for ASML, in addition to its equipment business. You see, these high-end machines installed by ASML at customers worldwide have incredibly long lifecycles. In fact, even its very first-generation machines, now decades old, are still in use thanks to their durability and great usability.
However, to maintain quality, these machines require regular maintenance and upgrades, which ASML offers through long-term contracts. This creates a steady, recurring income stream that is less volatile than new system sales for ASML, stabilizing its revenue base, which is especially useful in a highly cyclical market.
In Q2, these high-quality service revenues hit a record high of €2.1 billion, up a very impressive 41% YoY and now accounting for 27% of revenue. This rapid growth was driven by very high upgrade revenue coming from in-field upgrades to its NXE:3800 EUV equipment specification at customers. This upgrade cycle is providing a significant boost to service revenue, fueling ASML’s outperformance.
Meanwhile, systems revenue grew by a solid 18% YoY, driven by a solid contribution from EUV equipment, including the shipment of one High-NA tool.
Ultimately, this combination led to a very healthy 23% YoY growth in total revenue in Q2.
As management has pointed out, AI remains the primary driver of demand at present. The rapid adoption of AI is driving massive demand for advanced chips, particularly those used in data centers, GPUs, and edge AI devices. As tech companies race to develop more powerful AI models and deploy them at scale, chipmakers such as TSMC, Intel, and Samsung are increasing their investments in leading-edge fabs to expand production capacity.
And these most advanced high-performance chips require the most cutting-edge manufacturing processes, which depend heavily on ASML’s EUV and DUV lithography machines. This, in turn, boosts demand for ASML’s high-performance tools, and it is this strong demand that the company is seeing today, which should be a multi-year secular driver, if not well into the next decade.
There is simply much more capacity required, and ASML is the sole enabler of high-end manufacturing equipment. It is the ultimate beneficiary, especially thanks to its EUV monopoly.
According to management, this is currently being seen in both the Logic and Memory markets, with customers in both markets rapidly growing capacity, leading to growing demand for ASML’s EUV technology.
Also supporting its top-line growth is continued innovation. ASML might be operating a monopoly, seeing practically no competition, but the company is not sitting still. The earlier-mentioned NXE:3800 EUV specification is now the latest shipped on all systems, offering 37% more capacity that the previous version and significantly enhancing productivity. In turn, this enables customers to simplify their operations, minimize yield loss, and reduce cycle time.
This kind of sustained innovation is precisely why ASML's technological moat remains nearly impossible to disrupt. For decades, the company has relentlessly advanced the frontier of photolithography, mastering EUV technology after years of investment and collaboration with an exclusive network of partners like Zeiss and TRUMPF.
ASML’s machines now require such intricate design, precision optics, and coordinated subsystem integration that replicating even one generation—let alone catching up across several—demands immense capital, technical talent, and time. No competitor has managed to close the gap, and the ecosystem of chipmakers building their future roadmaps around ASML’s machines only deepens this advantage.
The result is a flywheel of trust, scale, and technological leadership that continues to widen the company’s lead in one of the most complex and strategically important manufacturing domains globally.
This still makes ASML a gem and one poised for rapid growth.
Anyway, back to the Q2 results.
Not only ASML’s revenue was strong and well above expectations thanks to very strong demand, but so was its order intake, which is generally the main focus for investors, functioning as an indication of true demand today and future growth potential.
Positively, ASML delivered once again in Q2. The company recorded a strong order intake of €5.54 billion, including €2.3 billion in EUV orders, easily surpassing the consensus of €4.44 billion and showing significantly better numbers compared to Q1, which had disappointed.
At the same time, please don’t place too much value on this quarterly number. As you can see below, order intake fluctuates heavily and tends to follow the cycles. At the same time, an H1 order intake of €9.5 billion is excellent, nonetheless.
This signals that ASML continues to see a healthy inflow of orders, even as the macroeconomic situation remains extremely uncertain, which is likely to be pressuring ASML’s customer appetite for such large orders. This makes this healthy order intake especially good news!
Finally, a quick note on regional exposure: ASML is still dealing with Chinese export restrictions, which are a headwind to revenue as well. For years, ASML hasn’t been allowed to ship any EUV systems to China, so this was all priced in. However, since the start of this year, restrictions on advanced DUV have been implemented. These restrictions effectively remove a significant portion of ASML's addressable market.
Notably, so far this year, ASML has been well-positioned to offset this headwind with growing demand elsewhere. For reference, in Q2, revenue derived from China as a percentage of total revenue decreased to 27% from 49% one year ago and is expected to drop further to 20% by the end of the year, and then into the teens in 2026.
Again, while a loss of business, ASML is able to offset this with strong demand elsewhere. For reference, Taiwan and South Korea increased to 54% from 39% one year ago, and the US rose to 10% from 3% one year ago.
Ultimately, these restrictions are much discussed, but with Chinese exposure now falling rapidly and ASML still delivering strong results, I don’t think this is a significant enough negative to price in any longer. Ultimately, exposure is now down, and restrictions are priced into revenue.
Of course, we could see more restrictions in the coming years, but this is becoming a much smaller piece of the pie, so the headwind is becoming less considerable by the quarter. I don’t think this should be a major concern to investors anymore.
If anything, I would argue that ASML, with less China exposure, is looking better positioned than ever, albeit with a slightly smaller Total Addressable Market (TAM).
Bottom line results
Moving to the bottom-line performance, ASML also nailed it in Q2. The company reported a gross margin of 53.7%, coming in well above guidance and expanding by 230 bps YoY.
Driving this outperformance was higher-than-expected installed base revenue, which carries higher margins. Additionally, there were some one-off cost benefits and a less negative tariff impact.
Further down the line, ASML benefited from strong cost control. For reference, R&D costs were up only 6% YoY and now account for 15% of revenue, and SG&A costs were up only 8% YoY and now account for 4% of revenue.
With cost growth lower than sales growth, ASML achieved solid operating leverage and expanded its operating margin in Q2, growing to 34.6%, up 520 bps YoY.
This also allowed for a solid net income of €2.3 billion, representing a net income margin of 29.9%, up from 25.3% last year, or improving by 460 bps YoY. This translated into an EPS of €5.90, up 47% YoY and beating the consensus by a healthy 15%.
These strong margins and cash flows allowed management to maintain a healthy balance sheet, with €7.3 billion in cash and a manageable long-term debt of €3.7 billion. In turn, this allowed management to significantly reward shareholders so far in 2025, returning more cash in the first half of this year alone compared to any other year in its history!
Why? This clearly signals management believes its shares are undervalued. ASML has always been thoughtful with buybacks, only buying when attractive, so this is a strong signal. For reference, management bought back €1.4 billion worth of shares in Q2 alone, significantly rewarding shareholders and reducing its share count at attractive levels.
Before we move on, just a quick word…
Want more out of your subscription? Even more content like this on a weekly basis?
InvestInsights PRO - $7.50/month ($70/annually)
An additional 2-5 paid exclusive stock analysis monthly.
Full insight into my own portfolio (14% return CAGR since 2022).
Monthly portfolio updates + Instant transaction alerts (Fully transparent)
A complete overview of all my target prices and ratings (online available).
Exclusive access to the PRO subscribers Discord channel
Instant access to earlier premium analysis on, for example, Adobe, Thermo Fisher, Spotify, and The Trade Desk.
Outlook & Valuation (+ tariffs)
Let’s start by quickly addressing tariffs, as these are playing a big part in its outlook.
As pointed out last quarter, ASML is feeling the impact of tariffs both directly and indirectly. Directly, ASML faces headwinds to its operations through shipments to the U.S. (machines and equipment) due to the U.S. tariffs on all imports. Additionally, ASML also has to deal with a number of counter-tariffs from other countries, which impact the shipment of components out of the U.S. to its fabrication plants.
As seen in many businesses, these tariffs increase the cost of operations. Notably, ASML has considerable pricing power to offset this and significant partner/supply chain leverage, allowing it to mitigate these headwinds quite effectively so far.
However, besides these direct impacts on its operations, ASML also has to deal with the indirect effects of these tariffs on the overall macroeconomic situation, such as rising inflation and disrupted global trade, leading to slower economic growth. Notably, this is the most impactful, as this indirect impact is leading to considerable uncertainty around near-term demand for ASML.
Amidst changing policies and tariff sizes, visibility is extremely low, leading to some caution from management – it simply has no clue about 2026 demand and chooses to warn investors early, perhaps too early – which wasn’t taken well.
Even though ASML delivered a strong Q2 report and reaffirmed its 2025 revenue at the midpoint of its earlier guidance, it was this caution for 2026, not even a warning, just some caution amid limited visibility, by very conservative management, that freaked out investors.
In my opinion, this is nothing short of a massive overreaction by a tense market. Management indicates that as far as it can see, the fundamentals of its AI customers remain strong, with plans for considerable growth in the years ahead. Yet, amid increasing global uncertainty, largely driven by macroeconomic and geopolitical factors, management remains cautious on 2026.
To me, this is simply management being overly conservative in its commentary due to short-term visibility issues, and investors are eating it up as reality.
Meanwhile. Both management’s short-term and long-term guidance remain unchanged.
For Q3, ASML expects to deliver revenue of between €7.4 billion and €7.9 billion, suggesting minimal YoY growth of 3% at the midpoint due to quarterly fluctuations in shipments and easing installed base revenue growth. Meanwhile, the gross margin is estimated to come in between 50% and 52%, which suggests minimal margin expansion of 20 bps at the midpoint.
For FY25, ASML guides for healthy growth of 15% YoY, which would put FY25 revenue at approximately €32.5 billion, bang on at the midpoint of its previous guidance range (between €30 billion and €35 billion). This growth continues to be driven by increasing EUV demand, primarily due to the surge in AI-related demand. All in all, this should allow for 30% YoY growth in ASML’s EUV business in 2025. Additionally, strong upgrade revenue should allow for 20% YoY growth in installed base revenues, which assumes a slowdown in installed base growth in H2.
However, offsetting this is flat growth in DUV revenue, mostly due to the loss of a big part of the Chinese DUV business, which was very big in 2024.
Together, this should allow for roughly 15% YoY growth in total revenue, to which I believe is some upside.
Meanwhile, management expects some gross margin moderation in H2 compared to H1, as the installed base revenue (higher margin) becomes a slightly smaller portion of the revenue pie in the second half. Additionally, there were some one-time benefits in H1 that shouldn’t be present in H2. And finally, management expects to ship more of its highest-end High-NA tools, which are still margin dilutive.
As a result, despite a 53.8% gross margin in H1, management expects the FY25 gross margin to be roughly 52%, though this remains prone to tariff changes.
As for long-term guidance, investors have nothing to worry about.
Even if demand softens in 2026 due to macroeconomic headwinds, it won’t vanish—it will simply be deferred. The underlying structural drivers of advanced semiconductor demand remain firmly in place. While growth may appear more gradual under these conditions, the long-term trajectory is intact.
For ASML, this means growth isn’t lost, just delayed—likely shifting to 2027 or 2028. Its 2030 targets remain within reach, as the eventual ramp-up in demand will still require expanded production capacity and significantly more ASML equipment in the field.
This is exactly why management reaffirmed its long-term guidance, despite short-term concerns. It still projects sales of between €44 billion and €60 billion by 2030 and a gross margin of between 56% and 60%. Even under the most conservative scenario, this still indicates a high single-digit revenue CAGR, while solid margin expansion would drive EPS growth into the mid-teens, at the very least.
Therefore, while a more challenging 2026 would be far from ideal, although I once again believe management is very conservative with its warning, it doesn’t break the thesis here – ASML remains a brilliant long-term investment, poised to benefit from structural trends and its monopolistic position in a mission-critical technology.
It’s short-minded investors who are selling right now. The money that is in it for the long run isn’t bothered.
Ultimately, after reviewing these Q2 results and management’s updated guidance, I have left my FY25 revenue projection unchanged and raised my FY25 EPS estimate to account for the Q2 outperformance.
Crucially, for FY26, I have lowered my revenue and EPS estimates to account for some demand weakness and margin pressure; however, I don’t think there is any risk of revenue growth turning negative, unless Trump significantly escalates his tariffs. Furthermore, I expect demand to improve again in 2027 and 2028, resulting in accelerating growth in the mid-teens. Meanwhile, EPS is expected to grow much faster, thanks to significant margin upside.
This is still a really strong outlook!
So, what does this mean for valuation?
Well, ASML shares are a bargain after yesterday’s sell-off. At a current share price of €626, ASML shares now trade at just 26x this year’s earnings, which is nothing short of ridiculous for ASML. This indicates a significant 35-40% in multiple compression over the last 9 months, despite the company's strong performance. Furthermore, this translates into a 3-year PEG of 1.3, which is a 26% discount to its own 5-year average and a 30% discount to the sector median.
To me, this suggests shares have now been oversold. These multiples completely overlook the fact that ASML is delivering excellent growth, has a very strong and durable outlook, and faces virtually no risk of disruption. ASML remains one of the highest-quality businesses globally, and its long-term secular growth drivers are not waning in the slightest.
As a result, looking at the fundamentals we have, I have a very hard time justifying this sell-off. I believe Wall Street’s reaction is massively overblown, considering management’s track record of cautious guidance, its excellent execution, and the sheer quality of the business and its long-term outlook.
Selling off already fairly discounted shares based on management’s caution is ridiculous, especially considering we can now pick up ASML shares for only 26 times this year’s earnings.
For reference, if we assume a 28x earnings multiple to be fair, which I believe is still a discounted multiple (sitting below the sector median and far below its averages), I calculate an end-of-2027 target price of €933 (up from a previous €930). From a current price of €626, this translates into potential annualized returns of over 17%, which is brilliant.
Indeed, ASML shares represent excellent value at current prices, with a very favorable risk-reward profile. At this price, potential headwinds appear to be more than factored in, leaving considerable room for upside.
Although I think it may take time for shares to bounce back, due to a lack of catalysts, this is a really compelling entry point for long-term investors.
I am happily buying the dip!
Looking for more earnings review like this one during this Q2 earnings season?
Make sure to upgrade to paid, and receive 2-3 more [PAID] earnings reviews per week during the season peak + all the other paid/premium benefits!
Upgrade now!
Absolutely agree! Fantastic company
I think there will be more short term buying opportunities given the market reaction. But definitely a solid business long term.