UBS released a research report stating that the Q3 2026 results of global lithography equipment leader ASML (ASML.US) were broadly in line with buy-side expectations, with EBIT about 5% above consensus and Q4 EBIT guidance midpoint about 7% above consensus.
Based on the company's reiterated and updated 2026 guidance, UBS expects 2027-2028 EPS consensus to be revised up by 5%-10%. UBS maintains its "Conviction Buy" rating on ASML with a 12-month price target of €2,350, implying approximately 56% upside from the October 13 closing price.
Q3 Results: Gross Margin Beat, EUV Sales Surged Year-over-Year but Slightly Below Consensus
ASML's Q3 net sales came in at €11.6 billion, broadly in line with consensus. Installation base management sales were €3.3 billion, beating consensus by 13%. EUV system sales were €4.1 billion, up 94% year-over-year but 7% below consensus. China system sales grew 110% quarter-over-quarter but declined 17% year-over-year, accounting for 23% of ASML's Q3 product sales. ASML continues to expect China to account for around 20% of group sales this year. Additionally, ASML's gross margin reached 57.5%, above the 56% consensus, driving Q3 EBIT to beat consensus by approximately 5%.
Key Highlight: Supply Falls Short of Demand, Order Interest Extends to 2029-2030
The report emphasized that ASML noted its planned 30% capacity increase for Low-NA EUV and immersion DUV in 2027 and 2028 would still be insufficient to meet customer demand. The company is studying further capacity expansion, particularly in 2028, and developing installation base upgrade solutions. ASML has received "a large number of 2028 orders," and customers have strong interest in 2029 and even 2030 orders. UBS believes this means backlog disclosed next quarter will far exceed consensus. Furthermore, pricing negotiations have been completed, with the impact partially visible in 2027 and fully reflected in 2028. This provides additional support for future gross margin and earnings growth.
Q4 Profit Guidance Beat, 2027-28 EPS Expected to Be Revised Up
For Q4 2026, ASML expects net sales of €14.2-15.2 billion (consensus: €14.3 billion) and gross margin of approximately 57% (consensus: 56.7%), implying Q4 EBIT could beat consensus by about 7%. Management's comments on capacity demand for 2028 and beyond suggest upside potential to EUV unit forecasts. Combined with a strong gross margin outlook, UBS believes 2027-2028 gross margin consensus could shift higher, driving 2027 and 2028 EPS forecasts up by 5%-10%.
How Will Investors React?
UBS believes the results were broadly in line with buy-side expectations. Given elevated market expectations ahead of the earnings release, the results may be slightly disappointing. However, the report indicates strong order backlog for the next quarter and further strengthens confidence in the ongoing positive gross margin trend. Therefore, UBS views this update as a positive signal and reiterates its "Conviction Buy" rating on ASML. The key focus of the earnings call will be the scale of planned capacity expansion for 2028, which is likely to determine how much upside exists to current forecasts.
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