ASML's Record High: Assessing the Scalability of Its AI Chipmaking Monopoly

The rally in ASML's stock to record highs is not a fleeting event. It is a direct bet on a powerful, long-term trend: the insatiable demand for artificial intelligence chips. This demand is forcing a fundamental shift in semiconductor manufacturing, creating a massive and growing market for the specialized equipment required to build the world's most advanced processors.

The Total Addressable Market (TAM) for the core technology ASML controls-extreme ultraviolet (EUV) lithography-is expanding rapidly. The global EUV equipment market was valued at $9.71 billion in 2025 and is projected to reach $33.91 billion by 2034, growing at a compound annual rate of 14.9%. This explosive growth is driven by the industry's relentless move to smaller process nodes, a transition that is now essential for AI performance. As chipmakers race to produce chips at 3nm and below, they are abandoning older, complex methods in favor of single-exposure EUV technology. This shift is central to the growth story.

ASML's position within this market is near-monopolistic. The company is the world's only supplier of the EUV machines required for these leading-edge nodes. This gives it extraordinary pricing power and strategic importance. Major customers like TSMC, Samsung, and Intel rely entirely on ASML's systems to stay competitive. The demand is being fueled by massive capital expenditure plans from these foundries, with TSMC's recent guidance signaling significantly higher 2027 capex to meet AI-driven demand. This spending directly translates into orders for ASML's equipment, creating a clear and scalable revenue pipeline.

The bottom line for a growth investor is the alignment of a massive, secular TAM with a dominant, defensible business model. The AI chipmaking boom is not a short-term fad; it is a multi-year industrial shift that requires a new generation of manufacturing tools. ASML is the sole provider of those tools, and the market for them is projected to more than triple in the next decade. This setup offers a rare combination: a vast addressable market and a company uniquely positioned to capture its growth.

Financial Scalability and Execution Against the TAM

ASML's financial performance this year demonstrates its ability to scale production in line with soaring demand. For the third quarter, the company delivered total net sales of €7.5 billion and a robust gross margin of 51.6%. More importantly, its outlook for the final quarter of 2025 is a powerful signal of continued growth, with management projecting total net sales between €9.2 billion and €9.8 billion. This would represent a significant sequential jump and solidify a full-year sales increase of around 15% compared to 2024. The company's confidence is such that it does not expect 2026 sales to fall below the 2025 level, even as it navigates a planned decline in China demand.

This execution against the TAM is built on a technological moat that appears insurmountable for the foreseeable future. The next major revenue driver is High-NA EUV lithography, a system so complex and expensive that it represents a fundamental leap in capability. Each High-NA machine is priced at approximately $380 million. The industry is tentatively scheduled to move to mass production of these tools in 2026, with Intel confirming its deployment ahead of 2027. This technology is not just a product upgrade; it is a necessity for building future AI chips at nodes like 1.4nm and 1nm. For ASML, it means a shift to a higher-margin, longer-duration revenue stream, further cementing its monopoly.

The durability of this lead is supported by massive, sustained investment. Estimates suggest ASML holds a technological advantage of at least a decade over any potential competition. This gap is not accidental but the result of the company's own enormous R&D outlays and its unique position as the sole supplier of the foundational EUV technology. The financial scalability is clear: the company is not only meeting current demand but is also positioning itself to capture the next wave of capital expenditure from its major customers, ensuring its growth trajectory remains intact for years to come.

Valuation, Catalysts, and Risks to the Growth Thesis

The current valuation places ASML at a premium, but the growth trajectory suggests the market is pricing in a multi-year expansion. Morgan Stanley's bull case projects a 70% upside for the stock, with shares potentially reaching €2000. This scenario hinges on earnings per share nearly doubling by 2027, driven by sustained capital expenditure from chipmakers. The bank's confidence is bolstered by TSMC's recent guidance, which signaled significantly higher 2027 capex, and by expectations for better-than-feared demand from the Chinese market. For a growth investor, this represents a classic setup: a valuation that rewards the company for its ability to scale its monopoly into the next decade of AI-driven chipmaking.

The immediate catalyst is the Q4 earnings report, scheduled for January 28, 2026. This release will provide the first full financial picture of the year and is critical for confirming the robust order intake and sales trajectory that analysts expect. Given the stock's 25% rally so far in 2026, the market will be looking for guidance that not only meets but exceeds the already-strong projections for the final quarter. Any sign of demand softening or supply chain friction could quickly temper the bullish narrative.

Yet the path to €2000 is fraught with geopolitical and execution risks. The company operates in a high-stakes trade environment, where its machines are a geopolitical chess piece. Recent weeks have seen political firestorms, including proposed tariffs on European goods and the collapse of the Dutch government, which throws export talks into question. These events highlight the vulnerability of a business model dependent on complex international trade rules and customer access.

A more technical risk is the adoption timeline for the next-generation High-NA EUV technology. While Intel has confirmed deployment before 2027, there have been reports that the introduction has been delayed due to cost concerns. ASML has pushed back on these allegations, but any significant slowdown in the industry's move to mass production of these tools in 2026 would directly impact the timeline for capturing the next wave of high-margin revenue. The company's decade-long technological lead is its greatest asset, but it must now navigate a volatile political landscape and ensure its customers see the value in the next leap forward.