ASML pops: AI boom trumps China jitters

ASML Holding NV delivered a mixed but broadly constructive third quarter report that struck a reassuring tone for investors worried about trade tensions and the semiconductor cycle. The Dutch semiconductor equipment giant—often considered a bellwether for global chip manufacturing—beat profit estimates and guided solidly for the fourth quarter, while tempering expectations for 2026 amid an anticipated decline in Chinese demand. Shares rose about 3% in premarket trading, putting the stock on track to test its October 6 all-time high of $1,059. The market response reflected cautious optimism: investors welcomed ASML’s reaffirmation of growth through 2025 and its commitment to maintaining 2026 revenue at or above current-year levels, even as geopolitical friction threatens its largest export market.

For the September quarter, ASML reported total net sales of €7.52 billion, modestly below consensus estimates of €7.79 billion, while earnings per share came in at €5.49 versus expectations near €5.45—a small beat driven by stronger margins. Gross margin reached 51.6%, topping estimates of 51.1%, as favorable product mix and operational discipline offset slightly lower revenue. Net bookings totaled €5.4 billion, exceeding the €5.36 billion consensus and signaling renewed strength in orders, particularly in memory. Of that, €3.6 billion came from EUV (extreme ultraviolet) systems, underscoring robust demand for leading-edge lithography tools used in AI and high-performance computing. Net income landed at €2.1 billion, broadly in line with forecasts, while free cash flow generation remained strong, allowing continued execution on share repurchases and dividends.

The quarter’s key driver was the accelerating wave of AI-related capital expenditures. ASML’s CEO Christophe Fouquet emphasized that “AI could create a lot of value in our products moving forward,” noting that both logic and advanced DRAM customers are expanding capacity for AI and 3D integration technologies. Demand for advanced EUV systems remains solid, with high-NA EUV tools entering commercial production and low-NA systems maintaining high utilization. Memory bookings rebounded meaningfully, representing 47% of mix compared to just 16% last quarter, reflecting improving fundamentals in the DRAM market, particularly for HBM (high-bandwidth memory) tied to AI data centers. Service revenue, at €2.0 billion, dipped modestly from the prior quarter but remained consistent with expectations.

Regionally, China was a standout contributor to recent results—accounting for roughly 42% of third-quarter revenue—but also the biggest concern looking forward. Management expects Chinese demand to decline “significantly” in 2026 relative to strong levels in 2024 and 2025. This warning comes as U.S. export controls continue to tighten and as the Trump administration signals potential new tariffs on semiconductor-related trade. While China’s surge in orders this year helped offset slower spending elsewhere, those front-loaded purchases could fade sharply as restrictions bite. ASML’s outlook reflects this risk, with management signaling flattish overall sales in 2026 despite ongoing growth in AI-driven infrastructure investment globally. That balance—China weakness offset by U.S., Korean, and Taiwanese strength—will likely define ASML’s revenue trajectory over the next two years.

The near-term outlook, however, remains upbeat. ASML guided fourth-quarter sales between €9.2 billion and €9.8 billion (vs. consensus €9.5 billion) with gross margin in the 51%–53% range, implying sequential growth of roughly 25%. For full-year 2025, management maintained its target for 15% sales growth and 52% gross margin. R&D spending is expected to run near €1.2 billion next quarter, reflecting continued investment in next-generation EUV platforms and advanced packaging systems. ASML also highlighted progress on its TWINSCAN XT:260 i-line scanner, which delivers up to four times higher productivity for 3D integration—a critical enabler for chip stacking and heterogeneous computing. The company’s partnership with French AI startup Mistral aims to embed machine learning throughout its product portfolio, improving lithography precision and throughput while strengthening its role in the AI supply chain.

Despite ongoing trade headwinds, ASML’s leadership is projecting confidence. Fouquet said, “We do not expect 2026 total net sales to be below 2025,” effectively removing the ambiguity that unsettled investors last quarter when management said it “could not confirm” 2026 growth. Analysts took the updated stance as a stabilizing message. Ben Barringer of Quilter Cheviot called it “decent guidance given the volatility,” noting that investors are already looking ahead to 2027 when new fabs and next-generation nodes should drive another expansion cycle. Still, China’s expected decline in 2026 will test ASML’s ability to diversify demand toward the U.S., Europe, and other Asian markets—a process that may depend heavily on geopolitical developments and the pace of AI infrastructure buildouts.

Financially, the company remains in strong shape. ASML declared an interim dividend of €1.60 per share payable November 6 and disclosed that it has repurchased €5.9 billion worth of shares under its current €12 billion program, which it expects to replace with a new buyback plan in January 2026. Its balance sheet remains robust with €5.1 billion in cash, allowing flexibility amid capex-heavy expansion by key customers such as TSMC, Samsung, and Intel.

The broader market read-through is encouraging. ASML’s steady margins, healthy bookings, and tempered but stable long-term guidance suggest that AI-driven semiconductor demand continues to outweigh trade-related uncertainty. The company remains the central supplier in the semiconductor manufacturing ecosystem—its tools are indispensable for producing the world’s most advanced chips—and that strategic positioning gives it resilience even as the geopolitical backdrop deteriorates. For investors, the 3% premarket gain reflects relief that the feared slowdown hasn’t materialized yet and optimism that ASML’s technology leadership will sustain its growth. If shares can break above the October 6 peak near $1,059, momentum traders could view it as confirmation that confidence in the AI-capex cycle—and ASML’s role within it—remains intact despite the trade-war crosscurrents.