Third quarter revenue rose 55% to €11.7bn (as expected), with a gross margin of 57.5%. Operating profit more than doubled to €5.2bn (€4.9bn expected).
Free cash flow rose from €0.2bn to €11.4bn, and there was net cash on the balance sheet of €10.8bn.
An interim dividend of €1.88 was announced, and around €4.1bn worth of shares were bought back over the quarter.
For the coming quarter, revenue is expected to be between €14.2-15.2bn, with a gross margin of around 57%. For the full year 2026, revenue is now expected between €44-45bn (previously €43-45bn), with a gross margin of around 56% (previously 54-56%).
The shares rose 2.2% in early trading.
Our view
ASML has delivered another record quarter. Sales were at the top end of guidance, and margins came in well ahead, helped again by customers upgrading machines already on their factory floors. More importantly, customers say demand will outstrip their own supply until at least 2028, and some want to place orders for 2029 and even 2030.
Netherlands-based ASML is the market leader in lithography machines used to make semiconductor chips. Without these, you wouldn't have the chips that power the latest phones, computers and AI data centres. It continues to push the boundaries of the most advanced tech, and competitors look a long way off catching up.
The constraint is now firmly on ASML's side. Management has admitted that the planned 30% capacity increases for 2027 and 2028 won't be enough, and it's looking at ways to go further. In the meantime, customers are turning to upgrades to squeeze more output from what they already have. That's no bad thing for ASML. The upgrade and servicing business is recurring, high-margin revenue, and benefits as the installed base grows.
This tends to be a cyclical sector, meaning there are peaks and troughs as companies look to match multi-year hardware investments with shifting demand. A cutting-edge ASML machine can cost upward of €380mn, so these aren't decisions that are taken lightly. That means trust in the manufacturer is key.
Under the hood, ASML is a capital-light business. Despite being a manufacturer, it's investing more than double in research and development compared to buying property and equipment. That's the key to staying ahead in the next wave of cutting-edge technology. ASML is working hard to move the industry forward, and key customers TSMC and Samsung have both outlined plans to lean into next-gen machines in the coming years.
There's more to come on profitability, too. New pricing agreements with key customers, which tie price more closely to the value the machines deliver, should start feeding through in 2027, with the full benefit from 2028. This gives us confidence in the margin trajectory even if costs increase.
ASML is an exceptional business and has been a major beneficiary of the AI hardware boom. The valuation reflects plenty of that optimism, but with visibility now stretching years ahead and margins still rising, we think the premium is sustainable and expect profit expectations to move higher. The key risks to our view are any slowdown in the pace of AI infrastructure investment, or ASML struggling to grow output fast enough to meet demand.
Environmental, social and governance (ESG) risk
The semiconductor sector is medium-risk in terms of ESG. Overall, this risk is managed adequately in Europe and North America but has considerable room for improvement in the Asia-Pacific region. Its reliance on highly-specialised workers means labour relations is one of the key risk drivers. Other risks worth monitoring include resource use, business ethics, product governance, and carbon emissions.
According to Sustainalytics, ASML’s management of material ESG issues is strong.
It’s targeting net zero emissions across the value chain by 2040, and its programme to cut emissions is rated very strong, with interim targets in place and carbon intensity down 37% versus its three-year average. More than 90% of its activities are covered by an internationally recognised environmental certification, and over half its energy comes from renewable sources. Water use is the area to watch, with no formal water stewardship commitment in place.
ASML requires a highly skilled workforce and scores well on employee management, ranking first in its subindustry, with turnover low at 3.7% in 2024. Despite its dominant position, there’s no evidence of antitrust controversies, with its market position protected by innovation and complexity rather than anticompetitive practices. Governance is also a standout, with a fully independent board.
ASML key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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