ASML Holding NV (ASML) EUR0.09

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ASML reported a 5% rise in fourth quarter revenue to €9.7bn (€9.6bn expected), with a gross margin of 52.2%. Operating profit rose 2% to €3.4bn, broadly as expected.

New orders rose 86% to €13.2bn (€7.0bn expected), as customers look to increase capacity to service AI-related demand.

Free cash flow rose 24% to €10.9bn and there was net cash on the balance sheet of €10.6bn.

A new 3-year share buyback program was announced of up to €12bn.

For the coming quarter, revenue is expected between €8.2-8.9bn, with gross margins of 51-53%. For the full year 2026, revenue is expected between €34-39bn (2025: €32.7bn), with gross margins of 51-53%.

The shares rose 6.7% in early trading.

Our view

The tide has officially turned for ASML. In the past 6 months, sentiment has improved on the back of a string of strong results from ASML, its peers, and key customers that are aggressively expanding capacity. We think that’s justified, as record new orders and more positive comments from management are supporting our view that we are entering a multi-year cycle for AI hardware.

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.

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 AMSL machine can cost upward of €380mn, so these aren’t decisions that are taken lightly. That means trust in the manufacturer is key and opens another avenue for high-margin revenue through servicing and upgrades.

The China story is important. ASML’s latest tech is largely barred from sale into China due to both US and Dutch restrictions. Older versions have seen strong demand for the past few years, but that’s expected to slow significantly in 2026. This is ASML’s largest region by sales, so it needs momentum elsewhere to help offset a decline in China.

Under the hood, ASML is a capital-light business. Despite being a manufacturer, it’s investing ten times more in research and development than in buying property and equipment. That’s the key to keeping it ahead of the competition in the next wave of cutting-edge technology.

With the new orders seen this quarter, the total backlog now stands at €38.8bn. There’s usually a lag between orders and revenue flowing, which is why 2026 is expected to see slowing profit growth (c.13%) before a reacceleration in 2027 (c.30%) and beyond. Though after these results, those numbers will likely move higher.

ASML is a best-in-class business with good long-term opportunities. Looking at the valuation, it’s rebounded from last year's lows, and we think it has a good chance of entering a sustained period of positive sentiment. If, as we expect, earnings expectations get revised higher, then we see upside from here.

The key risk to our case centres around the AI buildout. Any material investment slowdown or prolonged negative AI sentiment would affect both the valuation and future earnings potential.

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 is targeting net zero emissions across the value chain by 2040 with credible near-term targets in place for direct and indirect emissions. Its manufacturing sites have received an internationally recognised certification, which suggests a strong environmental management system. There’s also a commitment to reducing hazardous waste.

ASML requires a highly skilled workforce and scores well on employee management, with turnover falling from 6% to 3.6% in 2023. Despite its dominant position it has not had any significant antitrust controversies, with its market position protected by innovation and complexity rather than anticompetitive practices.

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.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.

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