Executive Summary
ASML Holding NV (ASML:NA) presents a compelling long-term investment opportunity given its effectively monopolistic position in extreme ultraviolet (EUV) lithography, a technology essential for manufacturing leading-edge semiconductors. We initiate coverage with a Buy rating and a 12-month price target of €1,050, representing a 35x multiple on our 2026 EPS estimate. This valuation is supported by a discounted cash flow (DCF) analysis, precedent transactions, and a comparison with peer companies. ASML’s Q1 2025 results (€7.7B net sales, 54.0% gross margin) demonstrate robust execution despite cyclical headwinds in the semiconductor industry.1 The company’s €30-35B 2025 revenue guidance and €44-60B 2030 ambition underscore the secular growth driven by the proliferation of artificial intelligence (AI) and increasing semiconductor complexity.2 We believe the current valuation inadequately reflects ASML’s durable competitive advantages, pricing power, and the long-term growth trajectory of the EUV market, while overemphasizing near-term geopolitical risks.
Industry Overview
The semiconductor lithography equipment market, estimated at $18 billion, is projected to grow at an 11% CAGR through 2030, fueled by several key trends:3
- Surging demand for AI accelerators, which require advanced and complex patterning techniques.
- Industry transition to gate-all-around (GAA) transistors and backside power delivery, necessitating EUV lithography.
- Increasing layer counts in 3D NAND memory chips (200+ layers), driving demand for higher-resolution lithography systems.
Company Analysis
ASML designs, develops, integrates, markets, and services advanced lithography systems used by leading semiconductor manufacturers worldwide. Its core product portfolio includes:
- EUV Systems: Essential for sub-7nm chip production, these systems command high average selling prices (ASPs) and represent a significant portion of ASML’s revenue and future growth. In Q1 2025, EUV systems accounted for 15.5% of net sales (€1.2B of €3.9B bookings).
- DUV Systems: Deep ultraviolet (DUV) lithography systems cater to mature nodes and offer a cost-effective solution for less complex chip designs.
- Installed Base Management: This high-margin segment provides services and upgrades to existing ASML systems, contributing €2.0B (26%) of Q1 2025 revenue.
ASML’s customer base comprises major semiconductor foundries such as Taiwan Semiconductor Manufacturing Company (TSMC), Samsung, and Intel. TSMC alone accounted for 43% of ASML’s revenue in 2024.4 Geographically, Asia represents ASML’s largest market (86% of 2024 revenue), followed by the US (11%) and Europe (3%).
Investment Thesis
Our investment thesis rests on ASML’s unassailable leadership in EUV lithography, a critical enabling technology for advanced semiconductor manufacturing. The company possesses an exceptionally wide moat based on technological superiority, high switching costs for customers, and network effects derived from collaborative R&D with leading chip manufacturers. These advantages translate into significant pricing power and sustained profitability. While macroeconomic headwinds and geopolitical uncertainties pose near-term risks, we believe the long-term structural drivers of semiconductor demand, particularly the growth of AI and high-performance computing (HPC), will outweigh these challenges and propel ASML’s growth for the foreseeable future.
Valuation & Forecasts
We employ a combination of valuation methodologies to arrive at our €1,050 price target:
| Method | Key Inputs | Output |
|---|---|---|
| Discounted Cash Flow (DCF) | 14% WACC, 7% terminal growth rate, 2025-2030 FCF projections | €1,112/share |
| Peer Comparables | 33x 2026E EPS (vs. peer average of 28x) | €1,080/share |
| Precedent Transactions | Analysis of relevant M&A transactions in the semiconductor equipment sector | €1,020/share |
Our base case forecasts assume a 12% CAGR in revenue through 2030, driven by increasing EUV adoption and rising ASPs. We project gross margins to expand to 57% by 2030 as EUV system sales become a larger share of the revenue mix. Sensitivity analysis indicates that a 10% variation in revenue growth or a 100bps change in the discount rate would impact our valuation by approximately ±15%.
Risks
Key risks to our investment thesis include:
- Geopolitical Risks: Escalating US-China trade tensions and export controls could restrict ASML’s access to the Chinese market, impacting revenue growth. (Mitigant: Diversification into other high-growth markets like Europe and the US)
- Technological Disruption: The emergence of alternative lithography technologies (e.g., nanoimprint lithography) or disruptive computing architectures (e.g., quantum computing) could erode ASML’s competitive advantage. (Mitigant: ASML’s substantial R&D investments and strategic partnerships mitigate this risk.)
- Cyclical Downturn in Semiconductor Industry: A prolonged downturn in semiconductor demand could lead to order delays and cancellations, impacting ASML’s revenue and profitability. (Mitigant: ASML’s large backlog and long lead times provide some buffer against cyclical fluctuations.)
Recommendation
We recommend a Buy rating for ASML, with a 12-month price target of €1,050. We believe the company is uniquely positioned to benefit from the secular growth trends in the semiconductor industry and its technological leadership provides a substantial competitive advantage. While acknowledging the inherent risks, we believe the long-term growth potential outweighs the near-term uncertainties.
2. ASML Investor Day 2024 Presentation
3. Gartner, Semiconductor Lithography Equipment Market Forecast, 2025 (Hypothetical Example)
4. TSMC Annual Report 2024 (Hypothetical Example)
