ASML Q2 2026 result-top 10 holding--Insatiable demand part 1

 SUMMARY OF ASML RESULTS CALL

My thoughts

Exceptionally strong results as ASML customers (eg TSMC), responding to huge demand from their customers (GOOG, AMZN, Meta etc). The rate of growth is better than expected as both memory and logic are now dramatically increasing volumes. Litho intensity is also increasing with more advanced nodes coming on, and lastly, installed base upgrades are increasing as customers want more from machines already in use. Installed base revenues as a percentage of the total equalled all-time records this half, and they are high margin.  Not long ago, there was some scepticism that litho intensity would increase and that memory demand would emerge and installed base demand would increase. Now all are firing.  

ASML states that their customers are signing longer-term contracts and have visibility that was not there before, giving confidence to expand production that should last several years. ASML plans to add 30% capacity in 2027 for low-end EUV and another 30% in 2028. Extraordinary.

Note that Intel secured a high NA machine, which ASML believes shows that customers are willing to try the technology and it will ultimately be used by the whole client base.

ASML are usually very conservative with its outlook, and the increases here were significant. Management also indicated that mix and value add were likely to drive price increases and improve margins over the next several years. ASML also intimated that they can deliver growth with the existing footprint. Note that these are not existing orders but expected given the anticipated demand.

Of course, all this demand rests on the diffusion and success of AI products in producing positive ROI for the underlying companies and for uninterrupted adoption. At this stage, Anthropic and OpenAI do make up significant parts of the demand and any issue there will likely cause concerns. The risks could come from many other areas, such as slower-than-expected adoption, as build rates remain huge. Despite locked-in contracts for the shorter term, any signs of demand slowing or an air gap would have huge SP implications across the whole AI infrastructure supply chain companies.

There is a circular argument for the infrastructure build-out stocks, of which I have ASML and TSMC. Although we have a secular growth trend, there are likely to be hiccups along the way, and with the shares pricing in extraordinary profitability, there is a risk of let-down at some stage. The execution task is huge. That said, these companies should play an ongoing role, and given the growth, they are not that expensive, but the growth, which is large, must be delivered. I am a holder and a seller of a portion of my holdings at this stage as a general strategy. Large drawdowns are most likely buy opportunities.

At 1350e and assuming 27% 5 year eps cagr and a 22X exit PE generates a 10% return. Current price is 1769e.

Charts below beyond 2025 are estimates. 

 Summarised transcript

In the second quarter of 2026, total net sales were EUR 9.3 billion, which is above the high end of our guidance as a result of higher-than-expected Installed Base Management sales.

Net system sales were EUR 6.6 billion, which included EUR 3.8 billion from EUV system sales, including sales of High-NA systems, and EUR 2.8 billion from non-EUV system sales. Net system sales were almost equally split between logic at 51% and memory at 49%. Installed Base Management sales for the quarter came in at EUR 2.8 billion, almost EUR 300 million above our guidance, a result driven primarily by additional upgrade business.

Gross margin for the quarter was above our guidance at 54%, primarily due to the contribution of very high-margin components within our Installed Base Management business.

We expect Q3 total net sales to be between EUR 11 billion and EUR 12 billion. We expect our Q3 Installed Base Management sales to be around EUR 2.9 billion. Gross margin for Q3 is expected to be between 55% and 57%....We now expect total net sales between EUR 43 billion and EUR 45 billion with a gross margin between 54% and 56% [ billion numbers in euros ].

The combination of continued strong momentum in customer demand and our ability to respond

Strong end market demand this year has motivated our customers to aggressively add capacity on their leading-edge nodes.

The dynamics are very similar in both advanced logic and DRAM, and the plans to build up capacity are equally aggressive. Our customers in both segments are entering into long-term agreements with their customers, providing them with longer-term visibility and the confidence to add significant capacity to support demand.

In logic,….these dynamics in the logic segments are driving both an increase in litho intensity and greater demand for advanced lithography. We now expect advanced logic/foundry-related net system sales to grow over 25% this year.

In DRAM, Our customers are adding meaningful capacity this year, while at the same time, they plan further capacity expansion as indicated by the plans to build multiple mega fabs. These additions will come online in phases over the coming years. In addition, DRAM lithography intensity is rising as customers migrate to advanced nodes. As a result, we anticipate our memory-related net system sales to grow by over 75% this year.

We now expect to ship around 65 Low-NA EUV systems this year, resulting in year-over-year EUV net system sales growth of over 45%. This demand is being fueled by very strong momentum in both DRAM and advanced logic.

Given these trends in our deep UV metrology and inspection business, we expect growth in non-EUV net system sales of around 25% this year. Installed Base Management sales are expected to grow over 30% this year,

Turning to our China-related business. We continue to expect this to make up around 20% of our total net sales for the full year, as it increases in line with the overall business, mainly related to an increased demand in mainstream logic.

With increasing visibility into their customers' plans, our customers have been able to share forecasts with us that extend out multiple years. We see this heightened visibility reflected in order momentum that has remained extremely strong through the first half of the year. As a result, our backlog continues to increase with a broad mix of customers.

For 2027, we are now close to being fully covered with orders for Low-NA EUV, and we are planning to increase our Low-NA EUV capacity by around 30%. Looking ahead to 2028, we have already received a significant number of Low-NA EUV orders. Strong demand forecasts from our customers have led us to investigate a further 30% capacity increase for that year. Similarly, for our immersion systems, we intend to increase capacity by 30% in 2027 and are investigating a potential further 30% expansion for 2028.

We were also very pleased to announce in a press release earlier today that Intel Foundry is using ASML High-NA EUV technology on the Intel 18A process node to produce a subset of its Intel Core Ultra Series 3 processors.

To conclude, customer demand remains very strong with visibility now extending several years into the future. We also see that the rapid growth of AI-related demand in advanced logic and DRAM is accelerating the move towards more advanced lithography solutions and increasing lithography intensity.

QUESTION and ANSWER SESSION

 

I think the key again for High-NA to be cost-effective, to beat the cost of Low-NA plus immersion multi-patterning, is to bring High-NA to the right maturity. And in that sense, we are very happy with the press release this morning about Intel, because this is, I would say, maybe the strongest sign so far that we're getting there.

 

you know that we keep on increasing the productivity of the Low-NA tools. So, of course, that gives us a pretty strong runway for potential price improvements going forward. …So I would agree with you that the current environment provides more flexibility for pricing than what you would have had on different days.

Of course, you will also appreciate, given the long order lead times that we have, that, that doesn't translate into pricing effects tomorrow. But clearly, the environment that we live in today, with the value that our products bring to customers is substantial, of course, gives us flexibility on pricing more so than what you would have seen in the past. And of course, we're executing on that as well.

 

I think all the capacity increases, either planned or investigated, we're talking about are based on our existing footprint.

 

But at this stage, given the conversations we have, we think the 85 (units delivered) is a nice representation of the balance between what customers are asking of us and what, at this stage, we've been asking ourselves in the supply chain to do.

 

And Joe, to further build on that, we should also remind ourselves that we shouldn't just be looking at unit percent increases, right? So we're looking at 30%, which is boxes, if you like, so 30% more tools. But you should also recognize that the tool mix that we're going to ship next year is a different tool mix from the tool mix that we shipped this year.

So when it comes to EUV in particular, right, the tool mix that we're going to ship next year will be Es and Fs, while this year, it's a combination of Ds and Es. And if you recognize the difference in output, then in essence what you're looking at is not 30% improvement of wafer capacity that we're adding, but approximately 45%. And in addition to that, as you also know, we're offering a whole slew of upgrade packages to the installed base to customers, which gives them another significant uptick.

So it's in the combination of improving the number of -- the capacity that we have internally to crank out unit numbers, and the productivity of the tools and the upgrades of the installed base.

 

I don't think we have reached yet a stable state on what the demand will be for '27, certainly not for '28. So we keep on revising, basically with our customers what that demand is. And again, the whole goal of our supply is to follow that demand. So I would not say that we are done with this discussion.

Of course, we don't have orders for 110 EUV Low-NA at this stage. So we're not waiting. We're preempting. But we are doing this because the demand signals that we're getting from customers have not yet translated into full POs, but the demand signals we're getting from customers are quite strong. So that's why we're investigating this and preparing as best as we can at this stage.

 

there is no DUV left anymore, and therefore, we'll build the Es and Fs next year. And of course, that mix will come with a better ASP than the mix that we have this year, because it also will come with higher productivity, as we just laid out, and also comes with a better gross margin profile. Of course, I'm not going to guide you the gross margin for next year, Krish, but the mix effect on EUV next year will indeed be more positive than it is this year.

But the fact that we now start talking about having significant order intake for '28 already, like 2 years in advance, is pretty strong,

It doesn't matter that much in terms of technology for us because the DRAM, the array itself is the same. HBM will require more wafers. So there's a volume effect again. So that's one element. The second element is, of course, the number of EUV and immersion layers, which has increased basically on the nodes that are ramping very, very strongly right now. So the 1c node, for example, which is going to be an enormous node, or even 1b are using more EUV layers. So this is really this combination, which creates a bit the perfect storm for ASML on DRAM this year and most probably the next few years to come.

you're essentially saying that your gross margin exit rate Q4 is around 56% to 58%,

Of course, the immersion number in the second half will be substantially higher than in the first half.

So I would say the guidance to get to the guidance is around 65 EUV tools with a slightly better ASP mix because of what I just mentioned.

In terms of the gross margin, if you do the analysis and if you take midpoint by midpoint, then I think you're looking for the second half at a gross margin of 56% approximately. And we guided 55% to 57% for Q3. So you should be looking midpoint at approximately the same number there for Q4. And why is that? Again, it's the mix because we have quite a bit more immersion and Low-NA EUV in there, one. Two, because we have better priced EUV in there for the second half. Three, because of the installed base business, which remains quite strong. Four, of course, we have volume effect and the fact that we have so much more volume in the second half than in the first half obviously gives you a positive fixed cost coverage. So it's the combination of those 4, as a result of which you see an improvement of the gross margin in the second half versus the first half.

On the mix effect within EUV, of course, that should only be better, because as I mentioned, next year, we're going to get a mix of Es and Fs. I think it will primarily be [indiscernible] Es. There will be a number of Fs in there, but the lion's share of the tools next year are going to be Es. Nonetheless, the mix next year will be better than the mix this year and will be better than the mix even in the second half of the year.

Again, we're not going to guide gross margin. But if your perspective on '27 is that, yes, again, that will be a bullish market where customers are looking for capacity expansion, then you could argue that the drivers of the gross margin that I just gave you should also be strong in next year.

 

And there's no reason to believe that that's going to be dramatically different other than what we said earlier on that in the current environment, with the value that we bring, we obviously are also having conversations with customers on how we get rewarded for that additional value.

 

So the key element today is that customer wants to get more capacity on their existing fab as quickly as possible. So this creates really strong condition for system upgrade. That's true this year. I think we see that in our numbers. This will be still true next year and mostly beyond that.

So I would say as long as we continue to experience this huge demand, existing nodes on the constraints of their existing fab, I think we would expect that the demand for those products will be very strong.

 

Yes. The only little detail I will stress again, maybe to help you, is that when it comes to advanced DRAM, when it comes to advanced logic, we see our litho intensity increasing. So there's a demand for more EUV, for more immersion. So maybe that helps you a bit to answer the question. Every time you convert multi-patterning to single-exposed EUV, for example, there is a shift, of course, from non-litho to litho. So I think that's maybe one element to help you in your calculations.

 

So the opportunity for DRAM is significant also because the volume is also significant. But there's no real change there. I think we still see both logic and DRAM being a good candidate for High-NA. The reason for that is both DRAM and advanced logic will be shifting more and more towards multi-patterning Low-NA over time. So that applies to both.

 

This is why we had a pretty fast migration towards the 3800E. I think this has become today the tool customers really want.

And the appetite for both upgrades, but also for faster tools is high.

updated assumption for High-NA EUV systems recognized this year, 2026?

R.J.M. Dassen
Executive VP, CFO & Member of the Management Board

You mean the number of tools that we referenced this year? We've said 4 to 5. Yes, 4 to 5 is still our view for this year.

 

So if you contrast the way we've done it in the past, in the past, we increased the headcount of R&D quite substantially. I would say that today, we believe that with the team that we have today, we can really entertain a very aggressive roadmap going forward. So all in all, I think you will continue to see us manage both R&D and SG&A quite nicely. And as a result of that, the operating leverage that you imply, I think the operating leverage will indeed become better in the quarters and the years to come.

So in essence, the capability improvement that we were talking about, we want to achieve that within the current parameters.