To The Moon

$ASML Holding NV(ASML)$ ’s aggressive buyback activity is more than just financial housekeeping. It is a strategic signal that savvy investors should pay close attention to. I would not say that I am a savvy investors yet, but I wanted to find signal which could give me opportunity to trade ASML.

ASML's consistent share buyback program is a significant aspect of its capital allocation strategy, and we as investors should be aware of several implications.

In this article, I would like to discuss these implications and also what is really happening behind ASML’s buyback, by looking at the fundamentals (e.g. valuation) and also technical analysis to see whether we can find an opportunity to trade ASML.

Management Confidence and Valuation Signal

Positive Signal: When a company like ASML, a leader in the critical semiconductor equipment industry, consistently buys back its own stock, it generally signals that management believes the stock is undervalued and/or that they have high confidence in the company's future prospects and cash flow generation. They are essentially saying, "Our stock is a good investment, even at these prices."

Systematic Approach: ASML's reports show a methodical execution of its buyback program, often maintaining a consistent daily investment despite fluctuating share prices. This "dollar-cost averaging" approach suggests a disciplined strategy to minimize market impact while maximizing cost efficiency, further reinforcing management's long-term view.

Return of Capital to Shareholders

Shareholder-Friendly: Share buybacks are a way for companies to return excess cash to shareholders, alongside dividends. ASML does both, indicating a balanced approach to capital return.

Tax Efficiency: For shareholders, buybacks can be more tax-efficient than dividends, as capital gains are only realized when shares are sold, unlike dividends which are taxed when received.

Increased EPS: By reducing the number of outstanding shares, buybacks mechanically increase earnings per share (EPS). Even if net income remains the same, a lower share count means each remaining share represents a larger slice of the company's earnings. This can make the stock appear more attractive on a per-share basis.

Offsetting Dilution: Growing companies often issue stock options to employees. Buybacks can offset the dilutive effect of these options being exercised, preventing a decrease in existing shareholders' ownership percentage.

Financial Strength and Capital Allocation Strategy

Robust Cash Position: Consistent, substantial buybacks indicate that ASML has a strong financial position and healthy cash flow. In a capital-intensive industry like semiconductor equipment, this demonstrates exceptional financial strength and management's ability to balance shareholder returns with investments in R&D and capacity expansion, which are crucial for maintaining technological leadership.

Long-Term Strategy: ASML's buyback programs are part of a long-term financial strategy. They have had multiple buyback programs over the years, demonstrating a commitment to this form of capital return. The current program, announced in November 2022, is substantial (up to €12.0 billion) and extends until October 2026.

Potential Downsides or Considerations

"Chasing the Upside" vs. "Chasing the Discount": While ASML's systematic approach aims to reduce the impact of short-term price volatility, there's always a debate about whether a company is truly "chasing a discount" or buying back at higher valuations. However, ASML's long-term perspective and confidence in its dominant market position suggest they view current prices as reasonable for a long-term investment.

Opportunity Cost: The cash used for buybacks could otherwise be used for other purposes, such as debt reduction, increased dividends, or strategic acquisitions/investments. We as investors should consider whether the company's allocation to buybacks is the most efficient use of its capital. For ASML, given its technological leadership and R&D focus, they are likely balancing these priorities carefully.

Financial Engineering Criticism: Some critics argue that buybacks can be a form of "financial engineering" that artificially boosts stock prices without necessarily addressing underlying operational challenges. However, for a company like ASML with strong fundamentals and a clear growth trajectory, this criticism is less likely to apply.

Flexibility: Unlike dividends, which can create negative market reactions if cut, buyback programs are non-binding and can be suspended or modified. This gives management flexibility to adapt to changing market conditions or business needs.

🔍 What’s Really Going On Behind ASML’s Buybacks

Management conviction: ASML insiders purchased over 92,000 shares in June 2025, worth around $61.4 million, using a significant chunk of free cash flow. That is not routine but I see as it is a bold vote of confidence.

Valuation disconnect: Despite trading at a forward P/E of 23x, similar to $Taiwan Semiconductor Manufacturing(TSM)$ ’s 21.1x, ASML’s stock is still 32% below its 52-week high, while peers like $NVIDIA(NVDA)$ and TSM are hitting new highs. That gap suggests mispricing, not underperformance.

Institutional alignment: Voya Investment Management recently initiated a $14 million stake, reinforcing the insider thesis that ASML is undervalued and poised for a re-rating.

Buyback mechanics: ASML’s €12B buyback program (2022–2025) is designed to cancel most repurchased shares, not just cover employee plans. That means fewer shares outstanding and EPS accretion, even if revenue stays flat.

I feel that we need to understand more on ASML’s fundamentals, so in the next section, I will share the break down of ASML’s valuation using the metrics we discussed and compare it to peers. In this way, we can decide if this is a smart entry point.

🔍 ASML Valuation Snapshot (as of late June 2025

🧠 What This Means for Your Entry Strategy

PEG red flag: A PEG of -5.20 means earnings have declined YoY — not ideal for growth investors. But if we believe this is a temporary dip (e.g. cyclical trough), it could be a contrarian opportunity.

FCF strength: A 3.59% FCF yield is well above historical norms and suggests ASML is throwing off real cash which indicate a bullish signal for long-term holders.

P/E premium: ASML trades at a premium to peers, but that is typical for a market leader with IP moat. The key is whether earnings growth returns in H2 2025.

🧭 Entry Playbook

Now I think maybe we can compare ASML’s valuation vs. peers and model its upside potential based on free cash flow growth.

📈 ASML vs. Peers — Valuation Comparison (as of late June 2025)

Source: FinanceCharts, Seeking Alpha

🧮 Intrinsic Value Model — Based on FCF Growth

Using a 2-stage DCF model:

2025–2028 FCF CAGR: ~28% (analyst consensus)

Terminal growth: 2.8%

Discount rate: 8.0%

Fair value estimate: €609/share

Current price: ~€653

Analyst price target: €766–€913 (20–40% upside)

Source: Simply Wall St, MarketBeat

We also should not forget to layer in technical analysis to complement ASML’s valuation and help us time a potential entry with precision.

📊 ASML Technical Indicators (as of late June 2025)

Source: Investing.com Technicals

🧭 Trade Setup: ASML Long Entry Playbook

📈 Current Price & Valuation

🧠 Risk Factors

Earnings softness: EPS growth dipped in early 2025, pressuring PEG ratio.

Geopolitical exposure: China-U.S.-EU chip tensions could impact export licenses.

Premium valuation: Trades at a higher multiple than peers — requires growth rebound to justify.

🚀 Reward Potential

Analyst Price Targets: $1,000–$1,300 range

Implied Upside: +25% to +63% from current levels

Catalysts:

Buyback program reducing float

EUV demand from $Intel(INTC)$, TSMC, Samsung

Institutional accumulation (e.g. Voya, JPMorgan)

🧭 Trade Setup Summary

If we were to look at the Technical Analysis (TA) using combination of EMA (Exponential Moving Average) and RSI momentum, we can see that the current RSI momentum is positive and strong, and we could be seeing a crossover soon.

This would mean that we might see a good short-term surge when July begins, though we can wait when there is a pullback, and share price start to trend downside to around $765 to $780, but we can also add on more shares at around $812.50 on the momentum strength and bullish crossover potential with stop-loss at around $750.

🧠 What I have Take Away As An Investor

Smart money is circling: When insiders and institutions align, it often precedes a revaluation catalyst — especially in a high-quality name like ASML.

Discount + premium = opportunity: ASML trades at a valuation premium but a price discount. That’s rare — and potentially powerful.

Watch the gap close: If ASML’s fundamentals justify its valuation multiples, price action may soon catch up to peers. That’s the upside insiders are chasing.

ASML is not “cheap” but we need to understand that it is mispriced relative to quality and cash flow strength.

PEG is improving as earnings rebound in H2 2025, which could justify the premium P/E.

Buybacks + FCF yield + institutional buying = strong floor for valuation.

Summary

The company's continuous stock buyback program should generally be viewed as a positive sign. It reflects management's confidence in ASML's valuation and long-term prospects, its strong financial health, and a commitment to returning value to shareholders.

While it is always important to consider the overall financial health and strategic direction of the company, ASML's position as a critical enabler of the semiconductor industry, coupled with its disciplined capital allocation, suggests that its buyback strategy is a well-considered component of its investor relations.

As investors, we might want to look at ASML current potential with reference to its share price, while we await a July rally, there might be bouts of pullbacks that could serve up opportunities for us.

Appreciate if you could share your thoughts in the comment section whether you think ASML's position as a critical enabler of the semiconductor industry will make its share price attractive for investors to consider for long term investing.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.