ASML's Scalability Play: Mapping the EUV TAM and Growth Path

The growth story for ASML is no longer about chasing a cyclical upturn. It is about capturing a structural, multi-year expansion in the Total Addressable Market (TAM) for advanced lithography. This shift is driven by a fundamental change in chip design: the industry is moving from complex, multi-step processes to simpler, single-exposure EUV. This transition is not a one-time event but a durable trend that increases the "lithography intensity" per chip, directly expanding the TAM for ASML's core products.

The most powerful evidence of this structural shift is the surge in memory demand. In the third quarter of 2025, memory orders surged 186% to €2.54 billion. This explosive growth signals a new super-cycle in memory, diversifying demand beyond traditional logic chips and creating a massive new revenue stream. More importantly, it reflects a broader industry trend where AI-driven workloads are demanding more complex, higher-performance chips across the board, from data center logic to high-bandwidth memory. This is a secular tailwind, not a fleeting boom.

This demand is being met with more EUV layers per chip. As chipmakers adopt EUV to replace intricate multi-patterning, they are adding more critical exposures. This creates a powerful dynamic where ASML's systems become a critical "complexity toll booth." Demand grows even without a corresponding increase in wafer volume because each chip requires more of ASML's machines. The company's Low Numerical Aperture EUV and High Numerical Aperture (High-NA) EUV products are central to this shift, with High-NA systems now entering customer fabs. This technological leadership ensures ASML is positioned to extract value from every new layer of complexity, scaling its TAM as the industry pushes toward sub-2nm nodes.

The bottom line is that ASML's growth is becoming more scalable and less dependent on macro cycles. The TAM is expanding because the fundamental architecture of advanced chips is changing, and ASML's tools are the only path forward. This structural expansion, fueled by AI and memory super-cycles, provides a durable foundation for revenue acceleration that goes far beyond the typical semiconductor equipment cycle.

Financial Scalability and the Path to Dominance

The financial model for ASML is now scaling with its expanding TAM, but the path is not without near-term mix pressures. The company's ability to convert structural demand into profit hinges on navigating a shift in product mix while maintaining its technological edge.

The most telling data point is the composition of demand. In the third quarter, total net sales reached €7.5 billion, with a staggering €3.6 billion of net bookings coming from EUV systems. This represents a clear pivot toward higher-margin advanced lithography, which is the core driver of the TAM expansion. Yet, the gross margin trajectory reveals a near-term friction. The company's gross margin contracted slightly to 51.6% in Q3, a drop from 53.7% the prior quarter. Management attributes this primarily to a higher share of lower-margin DUV systems in the sales mix, a temporary headwind as the industry transitions.

This mix dynamic underscores a key investment tension. While the long-term trend favors EUV, the short-term profitability is being pulled down by the continued demand for the more established DUV technology. However, the company's guidance suggests this is a cyclical bump, not a structural break. Management expects full-year 2025 total net sales to increase around 15% and has explicitly stated it does not expect 2026 total net sales to be below 2025. This commitment to sustained top-line growth, even as China demand faces a significant decline, indicates confidence in the underlying demand for advanced nodes.

The bottom line is that ASML's business model is proving highly scalable. The massive EUV bookings signal robust future revenue, and the company's technological leadership ensures it captures the premium value in each new chip layer. The slight margin contraction is a known cost of scaling through a product transition, not a sign of competitive erosion. For a growth investor, the setup is clear: the company is building a durable, high-margin revenue base from a structural TAM expansion, with the financials expected to follow the growth trajectory as the EUV mix naturally increases.

Rothschild Redburn's Bullish Case: Order Intake and Catalysts

The bullish case for ASML is now being backed by a major analyst upgrade, with Rothschild Redburn raising its Q4 2025 order intake forecast to €7,047 million. That figure is roughly 13% above the consensus estimate, signaling exceptionally strong near-term demand visibility. For a growth investor, this is a powerful signal that the structural TAM expansion is translating directly into concrete order flow, even as the company transitions to its new quarterly reporting cadence.

The firm's confidence is crystallized in its new price target of €1,250. This is a clear vote of confidence in ASML's ability to capture the expanding EUV market and maintain its technological leadership. The target implies significant upside from current levels and reflects the belief that the company's financial model is scaling effectively with its market position.

The next major catalyst on the horizon is TSMC's Technology Symposium in April 2026. Rothschild Redburn anticipates this event will be a pivotal moment for ASML's High-NA EUV investment thesis. The firm expects TSMC to provide an update on its roadmap that could move up implementation from 2030 to 2028. This acceleration would be a massive positive for ASML, as it would bring forward a key customer's commitment to the most advanced lithography, directly boosting near-term demand for its systems.

This analyst view also corrects a previous caution. In July 2025, Rothschild Redburn had warned that strong semiconductor sales wouldn't immediately translate into capital equipment demand, forecasting a second-half plateau. The firm now believes that semiconductor industry utilization rates have recovered sufficiently for capital equipment demand to "inflect positively" through the first half of 2026. This shift in outlook underscores the momentum building in the industry's investment cycle.

The bottom line is that Rothschild Redburn sees a clear path for ASML to accelerate its growth trajectory. The raised order forecast provides near-term validation, the price target reflects long-term confidence, and the upcoming TSMC catalyst offers a tangible near-term trigger for the High-NA story. For a growth investor, this represents a confluence of strong demand signals and a major industry event that could further de-risk and accelerate the path to dominance.

Risks and the Scalability Thesis

The scalability thesis for ASML is robust, but it faces a clear set of execution and external risks. The company's ability to maintain its dominance hinges on navigating these challenges without disrupting its structural growth trajectory.

The primary risk is execution on new technology. ASML's entire future depends on the successful rollout of its High-NA EUV systems, which are critical for maintaining its technological leadership and pricing power. These next-generation tools are more complex and expensive, and any delays or technical hurdles in their production and deployment could erode the company's competitive edge. The market is watching closely for signs that this transition is proceeding smoothly, as the High-NA roadmap is the key to capturing the next wave of chip complexity and sustaining the premium margins that define the "toll booth" model.

Geopolitical risks, particularly export controls, remain a persistent concern for this capital-intensive, cyclical-facing business. The company's global operations and customer base make it vulnerable to shifting trade policies, which can create uncertainty and disrupt order flow. Customer timing is another inherent volatility in the semiconductor equipment cycle. Even with strong structural demand, the timing of large capital expenditures by major foundries can cause quarterly fluctuations in revenue and bookings, testing the company's ability to smooth its financials through its installed-base services business.

The upcoming Q4 2025 earnings report on January 28, 2026, will be a key data point for validating the order intake and growth trajectory. This report will provide the first official financial results for the quarter that Rothschild Redburn's bullish order forecast covers. Investors will scrutinize the actual net sales and bookings figures against the raised expectations to see if the strong demand signals are translating into concrete financial results. It will also offer management's perspective on the product mix, margin guidance, and any updates on the High-NA rollout, serving as a critical checkpoint for the scalability thesis.

The bottom line is that ASML's growth story is not risk-free. The company must execute flawlessly on its next-generation technology while managing geopolitical headwinds and customer timing. The January 28 earnings report will be the first major test of whether the bullish order forecasts are grounded in reality. For a growth investor, the path to dominance is clear, but it requires navigating these known frictions with the precision that only a technological leader can muster.