ASML announced on Wednesday that it has raised its financial forecasts for the second time this year, reporting quarterly results that exceeded expectations, largely driven by the strong demand for AI chips from its clients. The Dutch company, renowned for manufacturing cutting-edge semiconductor equipment, now anticipates its annual sales will reach between 43 billion euros ($49 billion) and 45 billion euros, with a projected gross margin between 54% and 56%. This is a significant upgrade from its earlier forecast, which estimated annual sales between 36 billion and 40 billion euros and a gross margin of 51% to 53%. Following the announcement, ASML's stock surged over 7% when markets opened, ultimately settling with a 4.8% increase. This remarkable performance has pushed the shares up by 115% this year.
In the second quarter, ASML posted net sales of 9.3 billion euros, surpassing the expected 8.8 billion euros, while net profit reached 2.9 billion euros, outpacing the anticipated 2.6 billion euros. As Europe’s most valuable company, ASML is unique in its production of extreme ultraviolet (EUV) lithography machines, essential for creating the latest semiconductors. CEO Christophe Fouquet remarked that the order intake remains "extremely strong" in the first half of the year, prompting the company to aim for a 30% increase in both its 2026 low NA EUV capacity and its 2026 Deep Ultraviolet (DUV) immersion capacity.
ASML had already adjusted its forecasts in the previous quarter due to ongoing demand for its premier EUV machines. This trend is expected to persist as semiconductor manufacturers ramp up production to capitalize on the AI surge. In a statement, Fouquet noted that clients are rapidly expanding their capacity, which is translating into solid commitments for ASML's product range, thereby enhancing the company’s visibility into long-term demand. Javier Correonero, a senior equity analyst at Morningstar, commented on ASML's ability to meet this demand by optimizing its production processes in Veldhoven, where the DUV and EUV machines are made, and by implementing "fast shipments."
In related news, Taiwan Semiconductor Manufacturing Co (TSMC), a major ASML customer, reported a remarkable 68% increase in sales in June, driven by robust chip demand. TSMC is also planning to establish two advanced chip packaging facilities in the Chiayi Science Park in southern Taiwan, according to remarks from Taiwan's National Science and Technology Council Minister Wu Cheng-wen. Analysts at UBS have indicated that the ongoing expansion of semiconductor manufacturing facilities, combined with AI-driven demand for cutting-edge chips, should contribute to a strong performance for ASML in the latter half of the year.
Despite this optimistic outlook, the semiconductor sector is facing scrutiny as investors speculate about the sustainability of the substantial AI-linked capital expenditures. Additionally, ASML is contending with increasing export control restrictions on its advanced equipment for chips. In April, the stock experienced a 6% drop following news of a bipartisan proposal in the U.S. to block ASML from selling DUV machines to Chinese semiconductor firms, further complicating ASML's already dwindling sales in China. This proposed legislation still needs to be passed through the U.S. legislative system. Nevertheless, Correonero mentioned that such restrictions can sometimes lead to increased demand, as customers in China might rush to acquire machines ahead of potential bans. While he praised ASML as a well-managed company, he expressed concerns regarding high market expectations, suggesting that the stock may be overvalued. Currently, ASML is trading at around a 50x forward PE ratio, comparable to the highs seen during the COVID-19 pandemic. Correonero believes that a more reasonable valuation would suggest a forward PE of 35-40x.
