Executive Summary / Key Takeaways

• ASML maintains an unparalleled position as the sole provider of Extreme Ultraviolet (EUV) lithography, a critical technology for manufacturing the most advanced semiconductor chips, underpinning the global AI revolution.
• The company delivered strong Q2 2025 financial results, with total net sales of €7.7 billion and a gross margin of 53.7%, driven by High NA system revenue recognition and robust Installed Base Management upgrades.
• ASML projects full-year 2025 revenue growth of approximately 15% with a gross margin around 52%, fueled by increasing Logic and Memory demand for AI, and expects EUV revenue to grow around 30%.
• Despite strong long-term fundamentals, ASML expresses caution for 2026 growth due to increasing macroeconomic and geopolitical uncertainties, particularly regarding tariffs and customer capital expenditure timing.
• The long-term outlook remains highly positive, with ASML targeting €44 billion to €60 billion in revenue and 56% to 60% gross margin by 2030, driven by expanding AI applications and increasing lithography intensity on future technology nodes.

The Unassailable Lithography Engine Driving AI's Future

ASML Holding N.V. stands as the indispensable architect of the modern semiconductor landscape, providing the foundational lithography solutions that enable the production of the world's most advanced microchips. Founded in 1984, ASML's journey from a niche player to a global leader is defined by its audacious, two-decade-long investment in Extreme Ultraviolet (EUV) lithography. This strategic bet, which proved viable by 2018, established ASML as the exclusive maker of EUV machines, a technological chokepoint crucial for sub-7 nanometer chip manufacturing. This unique position underpins the global AI revolution, autonomous vehicles, and next-generation consumer electronics, making ASML a critical enabler in the global tech supply chain.

The semiconductor industry is experiencing a profound shift, with Artificial Intelligence emerging as the primary driver of growth across both Logic and Memory sectors. This secular trend, alongside energy transition and electrification, is creating an insatiable demand for more powerful, energy-efficient chips. ASML is strategically positioned at the heart of this expansion, with its advanced lithography systems being essential for the increasing complexity and miniaturization required for AI-driven applications. The global semiconductor market is projected to exceed $1 trillion by 2030, with ASML targeting annual sales between €44 billion and €60 billion by the same year.

Technological Leadership: The Heart of Innovation

ASML's core competitive advantage lies in its proprietary EUV technology, which prints microchips using light with a wavelength of just 13.5 nm—almost in the X-ray range. This unparalleled precision enables chipmakers to pack billions of transistors onto a single chip, driving Moore's Law forward by making chips more powerful, faster, and energy-efficient.

The company's technological roadmap is continuously evolving, with significant advancements in both its Low NA and High NA EUV platforms. The NXE:3800E, ASML's latest Low NA EUV system, boasts a throughput of 220 wafers per hour, a 30% improvement over its predecessor, the NXE:3600D. This enhanced productivity allows DRAM customers to replace complex multi-patterning Deep UV steps with single EUV exposures, leading to tangible benefits such as lower costs, faster cycle times, and better yields. New NXE:3800E systems are now shipping at full specification, and existing systems in the field are undergoing upgrades to reach this performance level, with revenue from these upgrades recognized in the Installed Base Management segment.

Looking to the future, ASML is pioneering High NA EUV technology, represented by the EXE:5000 and the new EXE:5200B systems. The EXE:5200B, designed for high-volume manufacturing, is capable of at least 175 wafers per hour, marking approximately a 60% productivity improvement compared to the EXE:5000. This technology offers a resolution of 8 nanometers, representing a nearly 3x improvement in transistor density per exposure compared to Low NA systems. Early customer feedback on High NA has been highly positive, with Intel (INTC) reporting a reduction in process steps from 40 to fewer than 10 on a given layer and Samsung (SSNLF) achieving a 60% improvement in cycle time in some use cases. These advancements underscore High NA's potential to simplify processes, reduce costs, and accelerate chip development, enabling future advanced nodes like 1.4 nanometer. ASML has already secured double-digit bookings for High NA systems, sufficient to cover the initial R&D and early production phases. Beyond High NA, ASML has draft optical designs for its next-generation Hyper NA machine, anticipated between 2032 and 2035, demonstrating a relentless pursuit of lithography innovation.

Business Model and Segment Performance

ASML's business model is structured around three core segments: EUV Systems, DUV and Metrology & Inspection Systems, and Installed Base Management.

In the second quarter of 2025, ASML reported strong financial results. Total net sales reached €7.7 billion, hitting the upper end of guidance, partly due to the revenue recognition of one High NA system and additional upgrade business. The company's gross margin for the quarter was 53.7%, exceeding expectations, benefiting from increased upgrade business, one-off cost efficiencies, and a lower-than-anticipated impact from tariffs. Net income stood at €2.3 billion, translating to an earnings per share of €5.90.

Net system sales in Q2 2025 were €5.6 billion, with EUV sales contributing €2.7 billion and non-EUV (DUV and Metrology & Inspection) sales at €2.9 billion. Logic accounted for 69% of these sales, while Memory represented 31%. Net system bookings for the quarter were €5.5 billion, comprising €2.3 billion in EUV and €3.2 billion in non-EUV, with Logic dominating at 84% of bookings. The company's backlog remains substantial, at approximately €33 billion at the end of Q2 2025, even after a €1.4 billion adjustment related to 2024 export restrictions, primarily impacting Deep UV orders for China.

The Installed Base Management segment delivered €2.1 billion in sales in Q2 2025, exceeding guidance. This segment is a growing contributor, with revenue expected to increase by over 20% in 2025 compared to the previous year, driven by expanding service revenue from a growing installed base and a rising contribution from EUV services. Notably, a portion of the anticipated 30% EUV revenue growth for 2025 is now recognized within Installed Base Management, reflecting the significant upgrade work on NXE:3800E systems in the field.

Competitive Dynamics and Strategic Moats

ASML operates in a highly specialized and capital-intensive industry, where its technological leadership has forged a formidable competitive moat. The company holds a near-monopoly in EUV lithography, a technology so complex and critical that it is virtually impossible for competitors to replicate in the near term. This dominance is protected by over 14,000 patents and decades of R&D investment, making ASML the "gatekeeper to the future of advanced computing."

While ASML faces competition in the broader semiconductor equipment market from companies like Applied Materials (AMAT), Lam Research (LRCX), KLA Corporation (KLAC), and Tokyo Electron (8035.T), its position in advanced lithography remains unassailable. Competitors like Applied Materials and Lam Research excel in complementary areas such as deposition and etching, offering broader tool portfolios or specialized process optimization. However, they lack ASML's core EUV lithography capabilities, which are essential for patterning the most critical layers at 5nm, 3nm, and beyond. KLA Corporation focuses on metrology and inspection, while Tokyo Electron provides a wide range of equipment, but neither directly challenges ASML's EUV monopoly.

ASML's strategic partnerships with major chipmakers like TSMC (TSM), Samsung, and Intel, along with research institutions, are crucial for co-developing technologies and ensuring its tools align with customer roadmaps. The company's pricing strategy, which ties tool prices to the value delivered through improved productivity and performance, further reinforces its market position. This allows ASML to capture value from the increased lithography intensity as customers transition to next-generation nodes.

Financial Health and Capital Allocation

ASML maintains a robust financial position, ending Q2 2025 with €7.2 billion in cash, cash equivalents, and short-term investments. The company consistently returns value to shareholders through dividends and share buybacks. For 2024, a total dividend of €6.40 per ordinary share was paid, representing a 4.9% increase over 2023. In Q2 2025 alone, ASML repurchased approximately €1.4 billion in shares, contributing to a total of €5.8 billion under its 2022-2025 share buyback program.

The company's commitment to innovation is reflected in its substantial R&D investments, which reached €4.3 billion in 2024, approximately 15% of sales. This continuous investment fuels its technological leadership and ensures its long-term competitiveness. Despite a negative free cash flow of €475 million in Q1 2025 due to customer payment dynamics and investments in fixed assets, ASML's overall cash generation remains strong, supporting its strategic initiatives and shareholder returns.

Outlook and Guidance: Long-Term Vision Amidst Short-Term Clouds

ASML has provided a clear outlook for 2025, expecting total net sales growth of around 15% with a gross margin of approximately 52%. This growth is anticipated to be skewed towards the second half of the year. Logic system revenue is expected to increase as customers expand capacity on leading-edge nodes, while Memory revenue is projected to remain strong, driven by demand for HBM and DDR5 products. The China business is expected to account for over 25% of total revenue in 2025, moderating to align with its proportion of the backlog, indicating resilient demand in mainstream segments.

However, the outlook for 2026 introduces a notable degree of caution. While ASML continues to prepare for growth, it "cannot confirm it at this stage" due to increasing uncertainties from macroeconomic and geopolitical developments. This shift from earlier expectations of growth is primarily driven by the dynamic and unpredictable nature of tariff discussions, particularly those impacting U.S. and EU trade. Customers are reportedly more concerned about tariffs, leading to cautiousness and delays in capital expenditure decisions. The potential direct and indirect impacts of tariffs on system sales, material imports, and overall market demand remain difficult to quantify.

Despite these short-term headwinds, ASML remains steadfast in its long-term vision. The company reiterates its 2030 revenue opportunity of €44 billion to €60 billion, with gross margins expected between 56% and 60%. This long-term trajectory is underpinned by the sustained secular growth drivers of the semiconductor market, particularly the expanding applications of AI, which will necessitate a product mix shift towards advanced Logic and DRAM and a more intensive use of advanced lithography systems. ASML's strategic partnership with Mistral AI, including a €1.3 billion investment, further underscores its commitment to leveraging AI across its product portfolio and operations to enhance performance and accelerate time to market for its customers.

Conclusion

ASML stands as an indispensable pillar of the global semiconductor industry, with its unparalleled EUV lithography technology serving as the engine for AI-driven innovation. The company's robust Q2 2025 financial performance, strong 2025 guidance, and ambitious 2030 targets underscore its dominant market position and technological leadership. While macroeconomic and geopolitical uncertainties, particularly surrounding tariffs, introduce near-term caution for 2026 growth, these factors appear to be delaying, rather than fundamentally altering, the long-term demand for ASML's cutting-edge solutions.

The company's continuous innovation in both Low NA and High NA EUV, coupled with its strategic investments and strong customer relationships, solidifies its competitive moat. As the world increasingly relies on advanced chips for AI, energy transition, and other transformative technologies, ASML's unique capabilities position it to capture significant value. Investors should recognize ASML's critical role in enabling future technological progress, understanding that while short-term volatility may persist, the company's long-term growth trajectory remains firmly intact, driven by its unassailable technological advantage and the relentless march of Moore's Law.