ASML Holding ASML and Applied Optoelectronics AAOI stand among the most strategically vital enablers of the AI supply chain in 2026. While ASML offers lithography tools used for manufacturing memory and logic chips, Applied Optoelectronics offers connectivity solutions to AI data centers.
Given that the AI data center market is likely to witness a CAGR of 31.6% from 2025 to 2030, reaching a market size of $934 billion in this timeframe, per a report by MarketsAndMarkets, both ASML and AAOI are expected to capitalize on this trend. Let’s analyze the opportunities, risks and fundamentals of both to determine the better investment choice.
The Case for ASML Stock
ASML holds a near-monopoly in extreme ultraviolet (EUV) technology crucial for complex chips. The rising demand for ASML’s lithography tools is gaining traction on the back of the need for producing more complex logic, DRAM, HBM and NAND chips. ASML’s EUV technology is gaining the highest traction among DRAM, followed by HBM and DDR.
Major customers like TSMC, Samsung and Intel rely on ASML’s systems to stay ahead in chip innovation. Furthermore, ASML’s venture into sub-2nm production with High Numerical Aperture (High-NA) EUV systems is the next technological leap for chipmakers. This technology will provide ASML with long-term potential as the industry moves toward denser and more efficient chips.
Shift toward High NA-EUV technology, strong usage of ASML’s DUV technology in China and EUV in the rest of the world is likely to drive the company’s top line in the to-be-reported quarter. As AI and high performance computing processes like training and inference require better HBM and DRAM chips, ASML’s advanced etching tools will remain in demand.
ASML, on its first-quarter 2026 earnings call, highlighted that both Memory and Logic customers are increasing capital spending and moving faster on expansion, supported by long-term agreements with their own customers. This is expected to add traction to ASML’s wafer fabrication equipment products.
The ongoing traction is clearly evident in ASML’s top-line growth. In the first quarter of 2026, ASML’s total net sales were €8.77 billion, up 13.2% from the year-ago quarter. ASML’s Net system sales totaled €6.3 billion, supported by more than €4.1 billion from EUV systems, which included sales of High-NA systems, and €2.1 billion from non-EUV systems. The Zacks Consensus Estimate for ASML’s 2026 top and bottom lines is expected to grow 18% and 24%, respectively. The estimates for 2026 earnings have been revised upward in the past seven days.
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The Case for AAOI Stock
Applied Optoelectronics is benefiting from the growing demand for its 400G and 800G products as global organizations are shifting from legacy data centers to AI-driven infrastructures. The AI data centers require networking that delivers high-speed optical interconnect solutions as they demand significantly higher workload, critical for next-generation architectures.
AAOI management expects 800G to become the largest data center revenue line beginning in the second quarter of 2026, with forecast demand projected to exceed production capacity through mid-2027. AAOI is targeting a capability of more than 500,000 pieces per month across 800G and 1.6T by year-end 2026.
AAOI’s business was heavily dependent on China. In 2024, 2023 and 2022, AAOI's revenues from products manufactured at its China plant accounted for 44.8%, 19.9% and 23%, respectively. However, throughout 2025, AAOI focused on vertical integration and expanding U.S. manufacturing to de-risk supply, costs and policy exposure.
This has resulted in Applied Optoelectronics sourcing less than 10% of the value of its 800G and 1.6T components from China as of the fourth quarter of 2025. AAOI plans to more than triple Texas laser capacity by mid-2027, including a new Sugar Land facility scaling by mid-to-late 2026. Another risk that AAOI is facing at present is from intensifying competition from industry leaders like Lumentum, Ciena and Coherent.
The rising expenses in the vertical integration by rolling out new manufacturing facilities have lowered its bottom-line outlook. AAOI expects the bottom line to be between a loss of 9 cents and break-even earnings in the first quarter of 2026. The Zacks Consensus Estimate for AAOI’s first-quarter 2026 bottom line has narrowed to a loss of 5 cents. The estimates have remained unchanged for the past 30 days.
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ASML vs. AAOI: Price Performance & Valuation Check
ASML shares have risen 31.9% year to date, and AAOI has soared 351.3%.
YTD Performance Chart
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On the valuation front, ASML trades at a forward 12-month price-to-sales (P/S) ratio of 11.97, slightly higher than the median of 10.30. AAOI trades at a forward P/S multiple of 9.89, way higher than its median of 2.62.
Forward 12-Month (P/S) Valuation Chart
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Conclusion: ASML vs. AAOI
ASML stands out as the more resilient, backed by its near-monopoly in EUV lithography, strong pricing power and consistent earnings visibility. In contrast, AAOI offers higher growth potential driven by surging demand for high-speed optical connectivity, but this comes with near-term margin pressure and elevated competition. AAOI also appears significantly more richly valued relative to ASML. Given these factors, we consider ASML to be a better stock to retain at present.
ASML and AAOI carry a Zacks Rank #3 (Hold) each at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
#1 Semiconductor Stock to Buy (Not NVDA)
The incredible demand for data is fueling the market's next digital gold rush. As data centers continue to be built and constantly upgraded, the companies that provide the hardware for these behemoths will become the NVIDIAs of tomorrow.
One under-the-radar chipmaker is uniquely positioned to take advantage of the next growth stage of this market. It specializes in semiconductor products that titans like NVIDIA don't build. It's just beginning to enter the spotlight, which is exactly where you want to be.
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ASML Holding N.V. (ASML): Free Stock Analysis Report
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This article originally published on Zacks Investment Research (zacks.com).