Can ASML become Europe’s first $1T company?

We are currently experiencing a massive semiconductor boom due to the convergence of multiple technological trends.

• Battery costs have fallen to a level that makes electric vehicles, smartphones, laptops, and other devices more affordable than ever before!

• Internet has never been faster and more widely available, driving growing demand for connected technologies!

• Semiconductor designers, such as $NVIDIA(NVDA)$ , are creating extremely powerful chips, enabling new use cases!

• Specialized $25B+ semiconductor fabrication facilities built by $Taiwan Semiconductor Manufacturing(TSM)$ are manufacturing millions of semiconductor chips like clockwork!

• All while the AI revolution is fueling unprecedented demand for powerful data center servers!

There is one company without whom none of this would have been possible, and that is $ASML Holding NV(ASML)$ !

ASML is the Dutch company that makes the machine that makes the world’s most advanced semiconductor chips. ASML has a complete monopoly on this technology, enabling it to exercise extreme pricing power.

Furthermore, ASML is the most important company in Europe, the one bright spot in the continent that has completely missed the technological revolution.

While ASML has experienced incredible growth in the last decade, in the last year, questions have arisen whether this growth can be sustained in this geopolitically volatile world we are living in. These questions have sent the stock price down 34% from its all-time high.

Can ASML recover from this slump and return to accelerated growth?

Can ASML even become Europe’s first $1T company?

In this report, I will figure it out.

1. Business Model

2. The AI Opportunity

3. The Overall Opportunity

4. Valuation

5. Conclusion

Semiconductor equipment maker ASML ships second 'High NA' EUV machine | Reuters

1. Business Model

ASML stands for Advanced Semiconductor Materials Lithography.

Their core business is the design, manufacture, and servicing of lithography systems used in semiconductor production. This is an extremely complex process, so I will try to explain it as simplyT as possible.

A semiconductor computer chip is like the brain of electronic devices. It contains billions of tiny switches called transistors. These switches turn on and off to process information, enabling computer chips to do calculations, store data, and run programs.

The first semiconductor chips that were manufactured in the 1950s and 60s had only a handful of transistors on a single chip, and were extremely expensive and difficult to manufacture.

For instance, the Texas Instruments Series 51 logic integrated circuit released in 1961 had around 6 transistors per chip. It took several weeks to manufacture, and only around 10% of the chips actually worked. Moreover, it was also extremely expensive, costing $450 a piece, which is almost $5,000 adjusted for inflation.

Over the decades, there were a lot of major technological advancements that improved yields, reduced costs, and increased the number of transistors per chip to the millions.

However, it was ASML and their lithography systems that were crucial in pushing transistor counts into the billions, making semiconductor chips as advanced and cheap as they are today!

Lithography systems use ultraviolet light generated by extremely powerful lasers that is cast through mirrors and glass lenses to “print” tiny, microscopic transistors on silicon chips. I skipped many steps and only explained the basic principles behind this technology, as this is not a physics and science Substack.

Inside ASML, the company advanced chipmakers use for EUV lithography

Simply put, ASML makes extremely complicated, large, and sophisticated technology machinery, using thousands of suppliers, integrating hundreds of thousands of parts. The company has limited competition on the low end and no competition in the high end, and even if a new well-funded competitor were to emerge today, it would take decades and tens of billions of dollars to produce anything remotely similar, and that assumes ASML would stand still.

Without ASML machines, Nvidia couldn’t design the most advanced AI GPUs that power OpenAI ChatGPT, Apple couldn’t design its in-house iPhone and MacBook chips, AWS and Google Cloud couldn’t provide cloud services that power the entire internet, and TSMC couldn’t build $25B fabrication plants to manufacture these chips.

This makes ASML, possibly, the most important company in the history of humanity!

Let’s examine how the company makes money in more detail.

DUV Systems

Deep Ultraviolent (DUV) lithography systems is ASML’s largest segment and flagship product.

DUV lithography for chip manufacturing | ZEISS SMT

These systems manufacture the majority of the world’s computer chips, as most semiconductor use cases don’t require the most advanced chips. The company offers various systems, each better suited for a particular use case.

• ArF immersion system – ASML’s most popular DUV system, which uses liquid immersion processes during the “printing” process. This system can make chips of 7-65nm and is used to make all kinds of semiconductors, memory, image sensors, GPUs, microcontrollers, and more.

• ArF dry system – Use a similar lithography method, but without liquid immersion. Cheaper and easier to use than the immersion system, but makes less powerful chips. Used to make mature and less advanced chips of 90-130nm for automotive, IoT, and industrial applications.

• KrF system – A less advanced system first introduced in the 1990s, using a different laser. Makes 130-250nm chips for use cases that require little processing power, like IoT devices, automotives, and basic electronics.

• I-line system – ASML’s oldest technology that is still in use, makes 350-800nm chips used in very mature technologies or niche applications.

The more advanced systems cost $40-70M, while the less advanced cost under $20M. While being a smaller part of the business, the KrF and I-line systems are still important. ASML has had decades to design the most profitable manufacturing process, and likely still delivers healthy margins.

Furthermore, these systems still bring more than €1B in revenues a year, clearly indicating that there is a demand in the market.

Most importantly, if ASML abandoned the low-end market, it would create space for a competitor to enter!

They would start at the bottom of the technology ladder, and then reinvest profits in R&D to move up the market and potentially challenge ASML’s lucrative DUV and EUV systems.

In total, the company made €12.8B from selling DUV systems in 2024.

As we can see in the graph above, this segment has experienced a healthy 10.7% CAGR since 2012, growing 241% overall!

The growth is primarily driven by ArF immersion systems, which grew from €5.2B in sales to €9.7B from 2022 to 2024.

EUV Systems

Extreme Ultraviolet (EUV) systems are ASML’s most technologically advanced product.

How does the laser technology in EUV lithography work? | Laser Focus World

These systems make the most advanced semiconductor chips powering AI data centers, Apple’s newest iPhones and MacBooks, and crucial pieces of military equipment.

Currently, there are two series of EUV systems that ASML makes:

• NXE series systems – A single New Extreme Ultraviolet system costs over €150M, weighs over 80 tons, and is the only thing that can manufacture the 5nm and 3nm chips used in 5G, iPhone 16 PRO MAX, and Nvidia H200 GPUs. In 2024, they delivered only 40 systems to key clients such as TSMC, Samsung, Intel, and others.

• EXE series systems – High-NA EUV systems are the newest additions to ASML’s product line, released just last year. These systems are larger and even more expensive than NXE. So far, only Intel has received this system for R&D and testing. This new system is meant to manufacture sub-2 nm chips that will power the next generation of iPhones and Nvidia’s GPUs.

In 2024, EUV systems earned the company €8.3B in sales.

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As we can see in the graph above, the growth has been explosive, delivering a 54.8% CAGR since 2012!

As the demand for increasingly more connected and advanced devices expands, ASML is in a great position to deliver these EUV machines for decades to come.

Metrology and Inspection Systems

We have established that the semiconductor manufacturing process is extremely complex, but I think we should expand on that to fully understand this segment.

In the picture below, we see the newly built TSMC factory complex in Arizona, USA.

TSMC's Arizona Plant to Start Making Advanced Chips - IEEE Spectrum

Once all facilities are finished, the total investment in Arizona could reach $165B!

Understandably, when talking of such gigantic sums of money, there is very little space for errors. Any delays or issues in the manufacturing processes could create a cascading series of events, causing billions of dollars in losses. For this reason, TSMC and other semiconductor fabrication companies spare no expense on quality control systems.

The manufacturing process of semiconductors is extremely sensitive!

We are talking of the precision of a few nanometers. Just for comparison, a human hair is the size of 100,000 nanometers, meaning that the transistors on the chip are many thousands of times smaller than even a human hair. Working in such conditions comes with extreme requirements for temperature control, air control, humidity, special chemicals, and even light pollution.

As even the tiniest of errors can cost millions of dollars, advanced metrology inspection systems are needed. Thus, ASML provides such systems that integrate tightly with the rest of its ecosystem of DUV and EUV devices to detect even the tinniest errors in the chip manufacturing process.

In 2024, the metrology and inspection segment had revenues of €645.5M.

A graph of a number of people AI-generated content may be incorrect.

While this is much lower than the sale of DUV and EUV systems, it is nevertheless a crucial piece that solidifies ASML’s ecosystem.

Services

In the DUV section, I mentioned how the KrF and I-line systems have been operational since the 1990s. If some of you thought, “geez, those systems must require a lot of maintenance,” you were 100% right.

All of ASML’s machines are very delicate, requiring constant updates and spare parts to operate without defects. This enables the company to earn a stable and growing income from the Installed Base Management services.

As their installed systems base grows, this segment becomes larger and a more important contributor to the company’s overall business!

Per their 2024 annual report, the company employs more than 10,000 people as customer service, maintenance, and field servicing agents.

The company calls its entire value proposition “Holistic lithography”.

ASML 2024 Investor Day Presentation.

First, ASML works directly with its customers to design lithography systems that will build chips to meet their computing objectives.

Second, ASML sends its engineers to provide system integration and installation services, to guarantee that its delicate machines are used according to the specifications.

Third, ASML provides metrology and inspection systems that observe the processes, making sure every tiny transistor on the silicon wafer works as intended.

Fourth, ASML sends its customer support field teams to fix any broken systems, change spare parts, or update software.

This holistic lithography system is designed to maximise customer value, reduce total cost of ownership, and drive further semiconductor industry innovation. All while delivering the high profits for the company.

In the last 12 months as of Q2 2025, this service has earned ASML €7.8B.

Since 2012, the segment has grown with a stable 18.5% CAGR!

Overall, the services segment transforms ASML's business model from a purely cyclical equipment supplier into a hybrid model with a substantial, recurring, and high-margin revenue stream. Moreover, this provides financial resilience in periods of market uncertainty or slowdowns in new system sales.

The semiconductor industry is notoriously cyclical, with revenue tied to customer capital expenditures, broader macroeconomic cycles, and, in the last few years, geopolitical and trade tensions. However, ASML's services segment is a stabilizing force because its machines are mission-critical and have a multi-decade operational life, effectively locking customers into long-term service, maintenance, and upgrade contracts. This creates a more predictable stream that de-risks the company's financials.

We can see this in the graph above, which clearly looks more stable compared to the lumpy sales of DUV and EUV machines.

2. The AI opportunity

While scientists and researchers have been working on AI for decades, the release of ChatGPT spurred the AI revolution into overdrive. Suddenly, every single company had to have an AI strategy, as AI promised to revolutionize the world as we know it, and none of them wanted to get left behind. However, the world quickly saw that for the AI revolution to continue, we need purpose-built AI chips, and a lot of them.

And everyone knows the result of that:

A graph of a company's revenue AI-generated content may be incorrect.

Nvidia saw its Data Center business explode 15X in around 4 years, to $146B. While growth is projected to continue, we are starting to reach a ceiling on what can be achieved with the current supply chain.

This means that if we want the AI revolution to continue, the world needs more of everything, more GPUs, CPUs, memory, electricity, networking equipment, internet cables, everything.

And there are few companies more exposed to the opportunity than ASML!

Artificial Intelligence (AI) Chipsets Market Size 2025 to 2034

Analysts at Precedence Research forecast the global AI chip market to grow with a 28.93% CAGR to reach $931B by 2034!

ASML’s new and most advanced High-NA EUV system will be crucial for these projections to come true, as it is the only device capable of shrinking the transistor below 2nm. You are probably thinking, what is the big difference between 3nm and 1.5nm?

Well, this would double the number of transistors on the chip of the same size. While this doesn’t mean double the performance, it still means significant performance improvements. By some estimates, 1.5nm chips could have 20-30% better performance at the same power, or require 40-50% less power for the same performance.

We are entering a stage in AI development where our grids can’t keep up with the electricity demand. You might have heard on the news that Microsoft signed a deal to reopen a decommissioned nuclear power plant as early as 2027. At the same time, Elon Musk’s XAI is building new gas power plants that will exclusively serve their data centers. Power efficiency is crucial in this time of high demand.

Furthermore, as AI models get smarter, more efficient, and smaller, they will get embedded all over our economy. Smartphones, smartwatches, smart glasses, and other AI devices. This means that many of these devices will have to become more powerful to run on device AI models, further driving demand for 2nm and beyond chips.

Also, let’s not forget that ASML is heavily using AI itself in their design, manufacturing, and servicing processes. Defect detection, predictive maintenance, customer support, supply chain management, and, most importantly, in research and development.

Overall, for ASML, the AI opportunity is massive. The company is not merely reacting to a market trend but proactively shaping it. By treating AI as a fundamental layer of its technology, ASML is transitioning from a hardware giant to an intelligent systems provider.

The combination of its deep science expertise with AI and a strategically cultivated talent pipeline positions it well to deepen its moat and retain market monopoly!

3. The General Opportunity

While AI is a great opportunity for ASML, that is not the only technological trend driving demand for lithography machines.

ASML 2024 Investor Day Presentation.

Let’s look at the picture above from their 2024 Investor Day Presentation. In here, we clearly see that ASML is expected to benefit from continued demand for advanced technologies across the entire global economy:

• Hyperconnectivity

• Internet of Things

• Cloud infrastructure

• Edge computing

• Energy transition

• Agricultural innovation

• Smarter use of resources

• Remote work

• Technological sovereignty

• Electrification and smart mobility

• Healthcare

• Automation

Let’s expand on some of the more interesting ones.

Hyperconnectivity doesn’t just refer to calling your grandma from your holiday in Tokyo, or watching Netflix on the beach, or WhatsApping with your friends every day. It also refers to the connection between devices and systems. Internet of Things devices such as smart thermostats, fridges, TVs, and more are increasingly in many people’s homes. Smart city equipment and software are crucial to make urban planning better and smarter. Connected traffic lights, smart public transportation, and autonomous driving.

Just for example, 5G technology is more complicated, thus they require 2-4 times more chips per single station versus the 4G stations. Additionally, as the range of the 5G signal is much lower, more stations are needed. This means that in total, the 5G network could use even 10 times more semiconductor chips than the 4G network.

A similar picture emerges when we look at electric vehicles. An EV is essentially a computer on wheels, whilst internal combustion engine cars are mechanical old dinosaurs. Thus, it is not a surprise that a single EV uses 2 to 3 times more computer chips than a gas vehicle. This means that as the world transitions to EVs in the next decades, the industry will require many more automotive computer chips. ASML’s DUV machines are perfect for manufacturing these less demanding computer chips.

Another key driver of global semiconductor demand is industrial and agricultural automation. Long gone are the days of a humble farmer treating his crop with back-breaking work. Today, the majority of the world’s food is grown and processed by industrial conglomerates that use sophisticated machinery, drones, software, and increasingly, AI. As the demand for these ever-smarter systems grows, the supply of industrial application semiconductors follows.

All of these technological trends require faster internet speeds, better coverage, longer batteries, affordable cloud infrastructure, and more powerful computer chips.

Semiconductor Market

In total, researchers at Fortune Business Insights estimate that the global semiconductor market will grow with a 15.4% CAGR till 2032, to reach over $2T!

ASML is uniquely positioned to benefit from many trends shaping our new and connected global economies.

4. Valuation

A graph showing the price of a stock market AI-generated content may be incorrect.

Last year, there was some optimism priced in the stock, but Trump’s Trade War and geopolitical tensions have dampened expectations, sending it down 34% from its all-time high.

At the moment, the company trades for a P/E of 27, and I think this drop was warranted as the stock was getting a bit pricey. Additionally, the situation with China and Trump looks less favorable. Last month, ASML said that in 2026, it “may not achieve revenue growth”, largely due to macroeconomic and tariff uncertainties.

However, I believe that Wall Street analysts are being rather pessimistic.

As we can see in the picture above, analysts expect the company to grow sales by 14.1% in 2025 and 4.4% in 2026. From 2024 to 2027, that would amount to a growth of 33%.

If indeed 2026, sales won’t grow much, I would expect a larger rebound in 2017.

Furthermore, ASML’s FCF is very jumpy, as it depends on customer payment schedules and ASML’s capex timelines. For industrial companies, payment terms are often extremely generous, sometimes even half a year or more, thus, I prefer to use earnings in this valuation.

However, analysts seem certain that margins will continue improving, as every year from 2024 to 2027, profitability will grow faster than revenue. This would result in EBIT and EPS growing by 50% and 60% by 2027.

Taking the growth into account, the 2027 P/E is 22.

In most cases, I would expect a company with a P/E of 27 to deliver more growth, but at least in the next 3 years, it seems ASML won’t deliver it. 2027 P/E is still high, so buyers at the current price either expect the company to outperform these estimates or are quite patient, knowing larger returns could be expected past 2027.

Valuation Model

As always, to see what kind of returns today’s investors could experience, I built a valuation model.

I model the services revenue growing with a 15% CAGR, faster than the 13% growth of systems sales.

The result is revenues of €60.3B, slightly above their €60B 2030 guidance published in 2024, delivering a 13.5% revenue CAGR.

Next, thanks to a higher share of services from overall revenue and higher economies of scale, I model the operating margin increasing from 31.9% to 37% by 2030.

Tax of 17% as per their 2030 guidance.

We get to earnings of €18.75B, an increase of 145% from 2024, a CAGR of 16.1%!

Assuming a 1% per year reduction in shares outstanding, as per their buyback program.

If multiple remains at 25, around what ASML trades for today, investors could be looking at a €1,251 per share stock.

That would be an upside of 89.6%, or a CAGR of 11.2%!

However, if multiple increases to 30, the upside could be 127.5%!

Overall, ASML seems to be fairly priced considering the potential investors could experience. However, there is significant uncertainty arising from Trump’s Trade War with Europe and China. In the worst-case scenario, if tensions increase, the stock could fall significantly, but unfortunately, it is impossible to tell now where this Trade War will go.

5. Conclusion

In conclusion, ASML sells sophisticated, extremely complex, and in-demand pieces of machinery that are crucial to our modern existence!

The least advanced DUV systems make chips for everyday items such as radios, watches, electric bikes, and more.

Whilst the more advanced DUV systems are the workhorses that manufacture chips inside the majority of consumer electronics, such as laptops, TVs, smartphones, gaming consoles, and cars.

Meanwhile, the revolutionary EUV systems are behind all of the most advanced technology, iPhone 16 PRO MAX, Nvidia H200, satellites, advanced military drones, and more.

But the HIGH NA EUV system that is about to take that to the next level, by enabling sub-2nm semiconductors.

Their monopolistic position in this technology is enabling them to increase prices and achieve 30% operating margins, something that is unthinkable for any other industrial equipment manufacturer. And as the company grows its installed system base, the income from servicing and upgrading this equipment will increase faster than the overall business, further strengthening margins.

ASML is uniquely positioned to benefit from some of the fastest-growing technology trends, such as AI, Cloud, EVs, IoT, and 5G!

So, can ASML come back from the current slump? I think yes!

As the valuation analysis showed, the company is fairly priced, considering its future growth prospects, with investors possibly looking at 89.6% to 127.5% upside by 2030. That would push the market cap towards €555B, around $646B using today’s exchange rate.

However, ASML investors need to be aware that the company is exposed to geopolitical risk stemming from Trump’s Trade War with Europe and China. Increased tensions could lead to lost revenue and derail the stock.

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