ASML's Path to Regaining Compounder Status: A Strategic Buy Opportunity Amid Semiconductor Recovery

The semiconductor industry is at a pivotal inflection point, driven by the relentless demand for artificial intelligence (AI) and high-performance computing (HPC). At the heart of this transformation is ASML Holding N.V., the Dutch multinational that dominates the extreme ultraviolet (EUV) lithography market. With its EUV systems accounting for 56% of net system sales in Q1 2025 and contributing €2.7 billion to Q2 net system sales [1][3], ASML is not merely riding a wave—it is engineering the tides of technological progress. For investors, the question is no longer whether ASML can reclaim its status as a compounder but how to position for its next phase of growth.

EUV: The Engine of Margin Expansion and Market Share

ASML’s Q1 and Q2 2025 results underscore the company’s ability to leverage its EUV technology for both revenue and margin expansion. The firm reported Q1 net sales of €7.7 billion and a gross margin of 54.0%, followed by Q2 net sales of €7.7 billion and a gross margin of 53.7% [1][5]. These figures reflect a favorable EUV product mix, with the NXE:3800E platform driving productivity gains for chipmakers. Management has explicitly tied this performance to the 30% growth in EUV revenue expected for 2025 [2], a projection bolstered by strong order intake: €2.3 billion in EUV net bookings in Q2 alone [3].

The strategic value of EUV lies in its role as the linchpin for advanced logic and DRAM manufacturing. As AI models grow more complex and data centers expand, the need for chips fabricated at 3nm and below becomes non-negotiable. ASML’s EUV systems are the only tools capable of enabling these nodes, giving the company pricing power and a moat against competition.

Cyclical Reacceleration and Structural Demand

While ASML faces headwinds from U.S. export restrictions to China and tariff uncertainties, these challenges are increasingly being offset by structural demand. The adoption of EUV in DRAM manufacturing—a sector previously reliant on deep ultraviolet (DUV) tools—is a game-changer. According to a report by the Futurum Group, DRAM manufacturers are now incorporating EUV layers to meet the demands of AI and cloud computing, a shift that could unlock a new revenue stream for ASML [5].

Moreover, the installed base of EUV systems is expanding. In Q2, IBM (Installed Base Management) sales reached €2.1 billion, driven by service and upgrade activities [3]. This recurring revenue model not only stabilizes cash flows but also deepens customer relationships, ensuring long-term value capture.

Navigating Geopolitical Risks and 2026 Uncertainty

ASML’s CEO has acknowledged that 2026 growth remains uncertain due to geopolitical tensions and customer caution [4]. However, the company’s 2025 guidance—€30–35 billion in net sales and a 51–53% gross margin—demonstrates resilience. The Zacks Consensus Estimate may project a revenue decline in 2026, but this overlooks the compounding effect of EUV adoption. Even if 2026 growth slows, the long-term demand for advanced lithography is unassailable.

Strategic Buy Opportunity

For investors, ASML’s current valuation offers a compelling entry point. The stock trades at a forward P/E of 22x, below its 5-year average of 28x, despite its dominant position in a high-growth sector. The company’s €1.4 billion in Q2 share repurchases and a robust balance sheet further enhance its appeal [5]. While short-term risks persist, the structural tailwinds—AI, HPC, and DRAM innovation—are sufficient to justify a long-term holding.

Conclusion

ASML’s journey to regaining compounder status is not without obstacles, but its EUV technology remains the cornerstone of the semiconductor industry’s future. By capitalizing on cyclical reacceleration and structural demand, the company is well-positioned to deliver outsized returns. For those willing to look beyond near-term volatility, ASML represents a strategic buy opportunity in a sector defined by innovation.

Source:
[1] ASML reports €7.7 billion total net sales and €2.4 billion net income in Q1 2025, [https://www.asml.com/news/press-releases/2025/q1-2025-financial-results]
[2] ASML Sees 30% EUV Growth in 2025, https://www.nasdaq.com/articles/asml-sees-30-euv-growth-2025-demand-sustainable-through-2026
[3] Deep Dive: Analyzing ASML's Q2 2025 Results — Implications for ... [https://longyield.substack.com/p/deep-dive-analyzing-asmls-q2-2025]
[4] One of the most critical AI companies in the world just said ..., https://fortune.com/2025/07/16/asml-cannot-confirm-growth-in-2026-wiping-out-30-billion/
[5] ASML Q2 Earnings: €7.7B Revenue, Projects 15% Growth ... [https://www.stocktitan.net/news/ASML/asml-reports-7-7-billion-total-net-sales-and-2-3-billion-net-income-55bxqlc4zc3r.html]