We came across a bullish thesis on ASML Holding N.V. (ASML) on Substack by Daan Rijnberk. In this article, we will summarize the bulls’ thesis on ASML. ASML Holding N.V. (ASML)’s share was trading at $727.70 as of Feb 7th. ASML’s trailing and forward P/E were 36.42 and 28.90 respectively according to Yahoo Finance.
An aerial view of a semiconductor factory, with its intricate machinery and equipment.
ASML remains one of the most dominant and well-positioned businesses in the semiconductor industry, despite recent share price pressure that appears completely unwarranted. The company’s Q4 earnings and guidance silenced critics, delivering a blowout report that exceeded expectations on multiple fronts. Revenue, order intake, and profit margins all came in ahead of consensus, reaffirming ASML’s long-term bullish outlook. Yet, despite this stellar performance, the stock saw only modest gains, as investor caution around AI-related names persisted following the Deepseek scare. This presents an attractive opportunity for long-term investors, as ASML’s fundamental strength remains intact, and its future prospects remain as bright as ever.
ASML’s monopoly on extreme ultraviolet (EUV) lithography machines positions it as a linchpin in the semiconductor industry. These highly advanced machines are essential for producing the most cutting-edge chips used in AI, data centers, and advanced computing. No other company in the world can match ASML’s technological capabilities, creating an impenetrable moat that ensures its dominance well into the next decade. Demand for AI and advanced semiconductor technology is only accelerating, further cementing ASML’s critical role in the industry. The notion that Deepseek poses a threat to ASML is entirely unfounded, as management confidently stated that lower AI costs will ultimately drive greater chip demand, directly benefiting ASML’s business.
The company’s Q4 performance underscored its resilience and ability to capitalize on industry tailwinds. ASML reported record-high quarterly revenue of €9.3 billion, exceeding the high end of its own guidance and beating Wall Street estimates by €300 million. This represented a remarkable 29% year-over-year growth, significantly outpacing the prior quarter’s 12% growth and reversing the declines seen earlier in the year. The rebound in semiconductor demand is now well underway, as industry giants like Intel and Samsung ramp up their fab expansions. This resurgence translates into growing capital expenditures, which directly fuel ASML’s sales and order pipeline.
A key driver of ASML’s outperformance was the strength of its Installed Base business, which includes recurring service revenues. This segment saw 35% year-over-year growth, reaching €2.1 billion and exceeding both management and analyst expectations. Service revenues are particularly valuable because they are highly predictable and tied to long-term contracts. Every ASML machine sold comes with decades of recurring service revenue, further reinforcing the company’s financial stability. Meanwhile, ASML’s newest high-numerical aperture (high-NA) EUV machines, which command higher prices and margins, contributed to revenue growth and signaled strong demand for its most advanced technology.
The geographic distribution of ASML’s sales also provided encouraging signs. While China accounted for a significant portion of revenue in 2023 due to an accelerated order backlog, its share of total sales declined from 47% in Q3 to 27% in Q4. This shift alleviates concerns about ASML’s dependence on China, particularly given ongoing export restrictions. Crucially, revenue lost from China was more than offset by increased sales in the U.S. and South Korea, demonstrating the company’s ability to diversify its customer base and reduce geopolitical risk. ASML expects this trend to continue, with China’s revenue contribution normalizing further in 2025 and 2026.
Another major highlight of the earnings report was ASML’s impressive order intake. The company secured €7.1 billion in net new orders, far exceeding Wall Street’s expectations of €4 billion. This robust demand, which included €3 billion in EUV orders, brings ASML’s total backlog to an astounding €36 billion. Essentially, ASML has already locked in the high end of its 2025 revenue guidance, further reinforcing the company’s visibility into future growth. While order intake can be lumpy from quarter to quarter, the strong pipeline suggests sustained demand from major chipmakers, particularly as TSMC recently raised its 2025 CapEx guidance by 19% above expectations.
ASML’s profitability remains equally impressive. The company reported a Q4 gross margin of 51.7%, exceeding its guidance range of 49% to 50%, driven by higher-margin service revenues and cost efficiencies in high-NA system installations. Net income came in at €2.7 billion, translating to a net income margin of 29.1% and an EPS of €6.85. For the full year, ASML generated total revenue of €28.3 billion, ahead of expectations and up 3% year-over-year. Importantly, this growth was achieved despite a 9% decline in EUV system shipments, underscoring the resilience of ASML’s business model. The strength of its Installed Base business and the accelerating semiconductor recovery set the stage for further growth in 2025 and beyond.
Despite ASML’s strong performance, its shares are currently undervalued. The stock has declined 11% over the past year, even though the company’s long-term fundamentals have only strengthened. This presents a rare opportunity to acquire ASML at an attractive price point. With solid prospects for high-teens EPS growth into the next decade and a dominant market position, ASML remains a top-tier long-term investment. At a 28x earnings multiple, this is an exceptional buying opportunity for one of the world’s best companies. After applying various valuation models and cautious assumptions, a conservative target price of €1050 per share by the end of 2027 suggests potential annual returns of 15%, including dividends, which would significantly outperform global benchmarks.
ASML Holding N.V. (ASML) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 64 hedge fund portfolios held ASML at the end of the third quarter which was 81 in the previous quarter. While we acknowledge the risk and potential of ASML as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ASML but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.