Here is my Full ASML Investment Thesis
$ASML Holding NV(ASML)$ was once a market darling, but now it gets garbage treatment.
Yet, its order book has reached all-time highs, the business is still growing fast, and it's heavily buying back stock.
Here is my full ASML investment thesis: 🧵
1/ASML is a pure blood monopoly.
It's the single manufacturer of Extreme Ultraviolet Lithography (EUVL) machines essential to manufacturing cutting-edge chips.
Foundries like $Taiwan Semiconductor Manufacturing(TSM)$ use these machines to embed microscopic circuits into silicon.
2/ ASML controls %100 of the global EUVL market.
ASML started in collaboration with Intel back in the 1990s.
It took 20 years to make a working prototype.
An EUVL machine takes:
- Four months.
- 100,000 parts.
- 5,000 suppliers.
ASML owns patents on key parts and has acquired most of the companies in the supply chain.
It's impossible to compete with them.
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3/ An average EUVL machine costs nearly $200 million.
They aren't going to get cheaper.
ASML is planning to launch the next-generation EUVL machine in 2028.
Next-gen machines will cost over $280 million.
And foundries like $Taiwan Semiconductor Manufacturing(TSM)$ have no option but to pay up.
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4/ These are durable machines that generate significant post-sales revenue.
95% of ASML's lithography machines sold in the last 30 years are still in service today.
More than that, the service revenue they generate makes up nearly 25% of all revenue.
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5/ This level of quality generates consistent growth.
It has grown revenues 15% annually since 2021 despite the unstable macroeconomic environment of the post-COVID period.
Earnings grew by 16% annually in the same period.
These are stellar numbers for a company of its size.
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6/ It delivered a solid beat and guidance this quarter, yet the stock got hammered.
Management said it forecasts growth for 2026, but it's not guaranteed due to uncertainty.
Stock bleed 10%.
I think this is an overreaction. Growth will even accelerate.
Let me explain:
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7/ We simply don't have enough chips.
Sam Altman posted on X saying that they are short of GPUs.
Amazon CEO Andy Jassy also said in the last earnings call that they are still supply-constrained.
Demand way outstrips supply now.
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8/TSMC is building new fabs to meet the demand.
It is investing $100 billion in the US to build 3 new fabs in Arizona.
It is building additional fabs also in Japan and Europe.
Samsung and Intel are expanding too.
All the new fabs will need lithography machines from ASML.
9/ On top of that, ASML is heavily buying back shares.
They returned over $35 billion to shareholders in dividends and buybacks since 2016.
This is 12% of the current market cap.
Shareholders will benefit from sustained dividends and buybacks in the future too.
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10/ Price is attractive.
ASML can easily grow earnings 17% annually in the next 5 years.
This gives us $50 EPS for 2030.
Its monopoly position deserves a bit higher multiple than industry peers.
At 25 times earnings, we will get $1,250 per share stock price, promising nearly 11% annual return.
Given the quality of the business, this is an attractive risk/return profile.
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