ASML – Record Orders, a 34% FCF Margin, and Poised for Mid-Teens Growth
Here's my take on the ASML Q4 results, including revised financial forecasts and a fair value estimate!
ASML – my third-largest portfolio position – released its Q4 earnings report earlier today, and it impressed. And that, I believe, is quite an understatement.
The company exceeded consensus across every key metric, delivering a record quarter in revenue, order intake, and free cash flow. Demand momentum remains strong and is clearly accelerating as customers grow more confident in the durability of the AI-driven investment cycle, confidence that directly translates into higher CapEx and rising demand for ASML’s equipment.
While a strong quarter was broadly anticipated by the Street, the magnitude of the outperformance still surprised to the upside.
The underlying narrative is straightforward. As demand for AI and data-center chips grows, so does demand for the most advanced 4nm, 3nm, and eventually 2nm nodes. This forces leading manufacturers, such as TSMC, Samsung, Intel, SK Hynix, and Micron, to aggressively invest in next-generation capacity. EUV lithography, for which ASML is the sole supplier, is mission-critical for producing these nodes; without EUV, they are simply impossible to manufacture at scale (ASML operates a pure monopoly in EUV, capturing 100% of the market, with no competition).
In that sense, ASML’s EUV systems are the true “picks and shovels of the AI boom. As infrastructure investment ramps up, demand for advanced nodes grows, and ASML’s business follows almost mechanically, being closely tied to advanced semiconductor demand.
These developments also allowed for ASML management to become more upbeat. The company guided its 2026 outlook meaningfully ahead of Wall Street expectations – guidance I would still characterize as cautious – as these demand trends are proving more structural rather than cyclical. At the very least, this is an investment cycle that could seemingly stretch into the 2030s.
So, put simply, ASML delivered a mighty quarter, and I would argue that the ~34% YTD gain is not that hard to justify when considering just how compelling ASML’s medium-term outlook and positioning are, and how much stronger this outlook becomes as confidence in the AI boom grows.
And on top of a strong outlook, investors also get solid financials, with expanding margins, a 34% FCF margin, and reinvestment metrics in the mid-to-high 30s.
There’s a good reason why this is a top 3 position for me – this is a world-class compounder poised for a brilliant decade, and these Q4 results only proved my thesis.
On that note, let’s dive into the numbers and break them down – this is my ASML quarterly update.
Welcome to InvestInsights — an independent equity research publication rooted in long-term, buy-and-hold investing, publishing actionable stock/equity research reports weekly!
📈 You’re reading my latest exclusive stock analysis. If you like this analysis, make sure to like & subscribe to receive much more like this!
If you’d like full access to this post and all my other exclusive analysis & portfolio access (13% CAGR since 2022), consider becoming a paid subscriber!
ASML delivers a blinding Q4 report
Healthy top-line momentum
Starting at the top, ASML reported Q4 revenue of €9.7 billion, which sat at the high end of guidance, surpassed Wall Street estimates by roughly €100 million, and was up 5% YoY.
This includes Q4 equipment sales growth of 7% YoY, which is notable given that machine shipments were 23% lower. Mainly offsetting this decline in shipments is a shift to higher-priced machines.
You see, ASML’s EUV equipment costs significantly more than DUV or other equipment, with a price tag of between €300 million and €500 million. Looking at the product mix, we can see that EUV sales in Q4 accounted for 48% of revenue, up 600 bps YoY, and this is a significant revenue driver. Additionally, the company recognized revenue from two more High-NA EUV systems – its latest and most advanced machines – which command even higher prices, further offsetting lower shipments.
In other words, compared with last year, when the company saw some pressure on EUV demand but offset it with high-volume DUV shipments to China, it has now shifted back to a lower-volume, higher-priced product mix.
In addition to equipment sales, ASML generated €2.1 billion in services revenue from its installed base, which was essentially flat YoY. As its installed base continues to grow, demand for services remains fairly strong, including spare parts, maintenance, and upgrades. Upgrades, in particular, were a strong driver of growth over the last year, as customers aim to optimize their current tools, and this is expected to persist as production volume growth is a priority.
ASML is now lapping an elevated upgrade cycle in the same quarter last year, which is putting some pressure on growth, but over the long term, a growing installed base and the push toward more advanced nodes should fuel healthy growth in this part of the business. These are high-margin, sticky, contract-based revenues, so an important part of the business model.
Following a strong year-end, ASML ended the year with total revenue of €32.7 billion, up 16% YoY. This includes installed base revenue of €8.2 billion, up 26% YoY, driven by the aforementioned upgrade momentum and accounting for roughly 25% of revenue.
Looking at the regional split, the annual numbers are more representative as quarterly numbers fluctuate heavily due to the timing of deliveries and recognition. Looking at the annual numbers, it’s clear that China still accounted for 33% of revenue in 2025, which isn’t a positive given the risk of further export restrictions. Positively, this is down from 41% in 2024 and expected to decline further in 2026, likely falling below 20%, significantly reducing this risk.
Meanwhile, Taiwan now accounts for 22% of revenue, up from 11% in 2024. South Korea was up 400 bps to 25%, the U.S. was down 500 bps to 12%, and EMEA and Japan were up slightly.
Overall, I am glad to see a reduction in exposure to China and a growing share of revenue from the U.S., EMEA, Japan, Taiwan, and Korea.
That brings me to arguably the highlight of the Q4 report: the order intake.
A record order intake
This is generally the focus point for investors and drove most investor and Wall Street optimism post-earnings, as ASML reported a record-high order intake in Q4, more than double the consensus.
ASML reported €13.2 billion in net orders in Q4, including a very high €7.4 billion in EUV tools. This brought the total 2025 net order intake to €28 billion, up 48% YoY, bringing its total backlog to €38.8 billion (of which €25.5 billion for EUV), up roughly €3 billion YoY.
That is absolutely sublime, blowing a €6.3 billion consensus out of the water.
Why is this so important? Because order intake is the leading indicator of future revenue visibility and customer conviction.
Semiconductor manufacturers place large, long-dated EUV orders only when they are highly confident of multi-year end-demand, given the size, irreversibility, and long lead times associated with these investments – orders can take multiple years and are practically non-cancellable. Therefore, these are not speculative purchases; they are multi-billion-euro capital allocation decisions that effectively lock in capacity plans several years into the future.
Furthermore, the fact that order intake exceeded consensus by more than double and hit a record high suggests that customers are no longer treating AI-related demand as a short-lived spike but rather as a structural driver that justifies sustained investment in advanced-node capacity. In other words, this is not about near-term revenue acceleration, but about a meaningful extension of ASML’s demand runway, and for the industry as a whole, a confirmation that demand is real and here to stay.
Management confirmed this in its prepared remarks. It communicates with its customers, both in logic and DRAM, and sees a more robust view of AI demand, confirming that it is seen as sustainable for years to come. And this has directly translated into a significant order intake.
And crucially, demand is overwhelmingly skewed toward advanced nodes, where EUV usage is highest, thereby benefiting litho-intensity. In other words, ASML is benefiting not only from higher semiconductor volumes but also from a structurally rising EUV lithography per-wafer throughput as the industry shifts toward ever more advanced nodes. As a result, ASML can grow far stronger than the industry as a whole in the coming years.
Stepping back, this underscores a broader point that is still widely underappreciated: the pace of change in computing is accelerating rapidly. AI is already reshaping compute requirements, and emerging technologies such as quantum computing will further increase demand for smaller, more advanced nodes. ASML’s equipment is the gateway to all of these technologies. As chips become more complex and transistor densities rise, lithography intensity will not just increase; it will explode.
ASML CEO Christophe Fouquet highlighted this acceleration by noting that while the traditional industry cadence has been to double transistor counts every two years under Moore’s Law, leading customers such as Nvidia are now pushing for far more aggressive scaling. In his words, they would like transistor counts to increase by a factor of 16 every two years, a pace that goes well beyond Moore’s Law and fundamentally increases demand for advanced lithography, thereby increasing demand for ASML tools significantly over time.
I think the result is clear: ASML’s outlook is among the best and most reliable in the industry, and continues to improve as computing requirements advance.
The Q4 order intake confirmed that momentum is now shifting in ASML’s favor. I wouldn’t be surprised if this kind of order momentum holds up in the coming quarters, as customers are eager to expand capacity — I think an order intake exceeding €40 billion in 2026 isn’t far-fetched.
For now, this Q4 order intake is a very bullish indicator for ASML’s medium-term outlook and quite sensational.
Bottom line results
Moving to the P&L, ASML reported broadly strong results, although investments are weighing on margins, which is probably the only negative to note in this report.
The Q4 gross margin was 52.2%, up 50 bps YoY, which is quite strong given that High-NA shipments still weigh on the gross margin. This brought the YTD gross margin to 52.8%, up 150 bps YoY and ahead of a 52% consensus.
Margin headwinds become more apparent as we move further down the line, as operating costs outpace revenue growth amid investments in R&D and production capacity. For reference, R&D costs increased 13% YoY in Q4, and SG&A increased 18% YoY, both outpacing revenue and subsequently putting pressure on margins.
As a result, the Q4 operating margin was down 90 bps YoY to 35.3%. Positively, strength earlier in the year and investments leaning toward the end of the year resulted in a stronger FY25 operating margin, coming in at 34.6%, up 270 bps.
However, this Q4 momentum does matter, as it may continue to weigh on margins in 2026. I expect investment levels to remain high to maximize opportunities in the coming years, which could put further pressure on the operating margin. Positively, management did announce its plan to cut 1700 jobs or roughly 3.5% of the total to reduce overhead after rapid workforce expansion in recent years, so that might provide some relief.
Further down the line, ASML reported net income of €2.8 billion in Q4, with a net income margin of 29.2%, up 10 bps YoY. The margin improvement was driven by a reduction in outstanding shares, which offset the decline in operating margin.
Ultimately, this led to an EPS of €7.35, up 7% YoY, and a FY25 EPS of €24.73, up 29% YoY and ahead of my €24.29 forecast.
Finally, ASML reported a blinding Q4 FCF of €10.9 billion, which is another all-time high and up 24% YoY. Note that FCF tends to fluctuate significantly from quarter to quarter and is weighted toward Q4 due to the timing of realizations.
Nevertheless, the FY25 FCF was similarly impressive, coming in at €11 billion, reflecting a remarkable 34% FCF margin, up 200 bps YoY. That is best-in-class and a testimony to its pricing power.
These excellent cash flows allowed ASML to further strengthen the balance sheet, ending the quarter with €13.3 billion in cash, up over €8 billion from Q3 and €0.5 billion YoY, as buybacks and dividends largely offset a €2 billion YoY increase in FCF. Meanwhile, debt on the balance sheet is minimal, at below €3 billion, so it remains in pristine financial health.
ASML raised the dividend by 17% in 2025, paying a total 2025 dividend of €7.50, which equates to a yield of roughly 0.6%. While that is not overly impressive, ASML has grown its dividend at a strong 27% CAGR over the last 5 years, and it remains well covered with a 32% payout ratio.
Additionally, ASML announced a new €12 billion buyback program through December 2028, which would allow it to retire roughly 3% of its shares over the next three years.
Finally, ASML’s reinvestment metrics are definitely worth highlighting.
TTM ROE sits at 38%
TTM ROIC sits at 37%
Those are simply sublime, highlighting ASML’s ability to reinvest its capital!
Want more out of your subscription? Even more content like this weekly? Consider InvestInsights PRO — $9.50/month ($95/annually)
PRO gets you:
A guaranteed minimum of 6-8 stock analyses every month (of which at least 3-4 are paid-exclusive).
Full insight into my own portfolio, including allocation, transactions, watchlist, and performance (13% annualized return since January 2022).
Instant transaction alerts anytime I buy or sell any shares (Fully transparent).
An overview of all my target prices and ratings (available online, updated weekly).
Access to the InvestInsights Hub, containing all of the above in a single online sheet, updated constantly!
Outlook & Valuation
That then brings us to the outlook, and let’s start with management’s updated guidance.
