ASML Delivers Blowout Quarter as Demand Outstrips Capacity Through 2030
TREE NEWS reports: ASML reported third-quarter results that beat expectations across the board, with earnings per share exceeding consensus by more than 20% and gross margin surpassing the upper end of the company’s own guidance. More importantly, the Dutch semiconductor equipment maker disclosed that order intake over the past quarter has already exceeded its existing capacity ceilings for 2027 and 2028, with customers now competing for delivery slots in 2029 and even 2030. The company said it is studying a further capacity expansion in 2028 that would exceed its previously planned 30% growth rate.
Financial Highlights
Net sales came in at €11.662 billion, roughly in line with expectations. Equipment sales of €8.373 billion missed by 4-5%, but installed base management (IBM) service revenue of €3.289 billion beat by about 13%, providing a crucial offset. Gross margin was the standout: 57.5%, above the guided 55-57% range and 132-134 basis points ahead of consensus. Operating income reached €5.173 billion, with a 44.4% operating margin, about 5% above expectations. Diluted EPS of €12.93 beat consensus by 20.8%.
For the fourth quarter, ASML guided net sales to €14.2-15.2 billion, with a midpoint of €14.7 billion, about 5% above consensus. Gross margin is expected around 57%, above the 56.4-56.7% consensus. Full-year 2026 revenue guidance was raised from €43-45 billion to €44-45 billion, implying roughly 36.2% year-over-year growth, with full-year gross margin around 56%.
Market Implications
The results directly challenge a long-standing bear thesis that lithography intensity would decline as semiconductor process nodes evolve, causing ASML to underperform the broader wafer fab equipment (WFE) market. JPMorgan noted that ASML’s 2026 revenue growth midpoint of 36.2% exceeds its forecast of 31% growth for the overall WFE market, demonstrating that ASML is outgrowing the sector. The bank maintained an overweight rating with a €2,100 price target, implying about 29.6x 2028 expected P/E. UBS maintained a strong buy rating with a €2,350 target, implying roughly 56% upside over the next 12 months, and expects consensus EPS estimates for 2027-2028 to be revised up by 5-10%.
ASML shares initially dropped after the report before staging a V-shaped reversal, rising nearly 3% at one point. The positive read-through extends to the entire semiconductor equipment sector, as customers locking in 2029-2030 delivery windows signals an industry upcycle with far greater durability than previously anticipated.
Key Takeaways for Investors
- ASML’s order backlog exceeding 2027-2028 capacity limits is a powerful demand signal, suggesting the semiconductor equipment upcycle may extend well beyond current expectations.
- The gross margin beat and upward guidance revisions should drive meaningful consensus EPS upgrades, particularly for 2027-2028.
- The bear case around declining lithography intensity has been factually refuted, at least for now, as ASML is growing faster than the overall WFE market in the first year of the upcycle.
- Positive read-through for the broader semiconductor equipment sector, including peers exposed to advanced logic and memory capex.
- Investors should watch for further details on ASML’s 2028 capacity expansion plans, which could unlock additional upside to EUV shipment forecasts.
