Should You Double Up on ASML Stock Despite Growth Concerns?

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On July 16, shares of ASML (ASML) experienced a 8.3% decrease due to their Q2 2025 earnings report and outlook. Despite surpassing analyst predictions for the period, some investors might be puzzled as to why ASML saw such a significant drop.

This explains that the recent drop in value makes it a good time for long-term investors, who are passionate about AI growth stocks, to consider purchasing shares as it presents a promising investment opportunity.

A long-term winner from AI investment

ASML is a company that manufactures semiconductor lithography machines, which are utilized by companies such as Taiwan Semiconductor Manufacturing (NYSE: TSM), Samsung Electronics (OTC: SSNL.F), and Intel (NASDAQ: INTC). Their deep ultraviolet (DUV) systems rely on lenses for etching details onto microchips, whereas their extreme ultraviolet (EUV) systems make use of mirrors instead.

The equipment used for Extreme Ultraviolet (EUV) lithography are significantly pricier than the ones used for Deep Ultraviolet (DUV) lithography. The top-tier, high-numerical aperture (high-NA) EUV machines can cost up to $400 million each, while the lower-end, low-numerical aperture (low-NA) EUVs start at approximately $150 million. In contrast, the DUV machines typically range from $5 million to $90 million in price.

It’s primarily DUVs that account for most of ASML’s current sales. However, EUVs offer greater precision, fewer defects, shorter production times, and lower overall expenses, making them an attractive long-term investment for fabrication facilities aiming to meet the growing demands in artificial intelligence (AI).

In a similar fashion, the development and implementation of Extreme Ultraviolet (EUV) technology has played an unacknowledged yet crucial role in the AI revolution. These EUV machines possess such precision that they manufacture microchips using light with wavelengths as tiny as 13.5 nanometers, which is nearly as minute as an X-ray. This technology enables ASML to cram more transistors onto each microchip, a vital aspect for enhancing computational power.

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Laying the groundwork for future growth

After completing two quarters, ASML has adjusted its full-year forecast. The company anticipates a 15% increase in sales compared to the year 2024, equating to approximately 32.55 billion euros or $37.79 billion. Additionally, they predict their gross margin will be roughly 52%, slightly higher than the 51.3% gross margin achieved in 2024.

Despite the company acknowledging growing economic and political uncertainties worldwide, these factors may influence its business operations and the scheduling of customer investments. The statement that raised eyebrows among investors from ASML’s press release was: “In light of these circumstances, though we are still planning for growth in 2026, we cannot guarantee it yet. We will keep tracking events during the next few months.

The sudden announcement was unexpected considering the robust demand for ASML’s EUV technology and the significant increase in AI investments, particularly from financially capable hyperscalers. However, long-term investors can take comfort knowing that the company’s medium-term forecast, disclosed in November 2024, remains unchanged. ASML continues to anticipate revenue between 44 billion and 60 billion euros ($51.08 billion to $69.65 billion) by 2030, and the gross margin is projected to increase within a new range of 56% to 60%.

It’s possible that ASML’s profit growth is attributable to a larger proportion of EUV orders contributing to their revenue. In their recent quarter, ASML reported total sales of approximately 7.69 billion euros ($8.9 billion), with 2.1 billion euros ($2.43 billion) going towards servicing existing equipment and 5.5 billion euros ($6.37 billion) in new orders. Interestingly, about 42% or 2.3 billion euros ($2.66 billion) of these new orders were for EUV systems. However, only 11 new EUVs were sold this quarter compared to a total of 76 systems, highlighting the high-value and high-margin nature of these advanced machines.

By calculating the EUV bookings for each quarter and then dividing by 11, we can determine that the average EUV sales price for that period was approximately 209 million euros or $242 million. Since EUVs are becoming a larger portion of ASML’s net bookings, it is expected that their profit margins will increase further. As the proportion of EUVs sold shifts from primarily low-NA to high-NA models, this trend should continue.

ASML is a high-conviction buy

The sudden drop in ASML’s share price might be an exaggeration, serving as a lesson that stock values can fluctuate rapidly due to short-term factors not directly connected to the underlying long-term investment case. The company’s management is exercising prudence by avoiding setting unrealistic expectations, and they could potentially fall short in delivering them. However, throughout their financial reports and discussions during the earnings call, ASML has consistently emphasized robust demand for their EUV systems and the long-term prospects of AI.

Investors looking at a five-year investment timeline are being informed by ASML about a continuous growth trajectory ahead, making this high-profit corporation an attractive prospect for value seekers.

It’s noteworthy that ASML has announced its intention to carry on buying back shares, a move that will decrease the number of outstanding shares and boost earnings growth at an accelerated pace. Additionally, the company is providing income for its shareholders through dividends, which are gradually increasing. Although ASML only offers a yield of around 1.1%, it’s still a significant passive income source when compared to many other growth stocks that either offer lower yields or don’t pay dividends at all.

Add it all up, and ASML stands out as an excellent stock to double up on now.

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2025-07-23 11:21