ASML Holding ASML posted solid second-quarter 2026 results, with both the top and bottom lines improving year over year as well as beating the Zacks Consensus Estimate. The company witnessed improved gross margin and an increase in backlog.
Shares of ASML have gained 25.1% in the past three months, outperforming the industry, its sector, as well as the Zacks S&P 500 composite in the same time frame. ASML shares are trading at a discount to their 52-week high.
ASML vs Industry, Sector, S&P 500
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The company is a critical player in the global semiconductor industry, maintaining a dominant position in extreme ultraviolet (EUV) lithography systems. Industry prospects remain strong, fueled by rising AI-driven infrastructure spending that is boosting demand for advanced logic and memory chips. Supported by its comprehensive product portfolio, management expects robust Memorychips across all business segments.
Shares of KLA Corporation KLAC and Applied Materials AMAT have rallied 24.4% and 45.3% in the past three months, respectively, in the same time frame.
Sneak Peek Into ASML’s Q2 Results
ASML reported second-quarter revenues of $10.8 million, up 24% year over year.
Revenues came above the high end of the guidance as a result of higher-than-expected Installed Base Management sales.
Net system sales totaled €6.6 billion, including €3.8 billion from EUV systems and €2.8 billion from non-EUV products. ASML recognized sales of one High NA EUV system during the quarter.
EUV accounted for 57% of second-quarter system revenues, while ArFi systems contributed 29%. Logic represented 51% of net system sales, and Memory accounted for the remaining 49%, reflecting balanced demand across advanced semiconductor applications.
Gross margin was 54%, up 30 basis points, primarily driven by the contribution of very high-margin components within its Installed Base Management business. It also exceeded the guidance.
The bottom line came in at $8.81, up about 98% year over year.
At the end of the second quarter, ASML’s cash, cash equivalents and short-term investments were €7.58 billion.
ASML repurchased around 0.8 million shares for approximately €1.1 billion and declared a first quarterly interim dividend of €1.88 per share, to be paid out on Aug. 5, 2026.
ASML generated €1.70 billion in operating cash flow during the quarter. After €386 million in purchases of property, plant, equipment and intangible assets, free cash flow totaled €1.32 billion.
Optimistic Guidance
ASML expects third-quarter 2026 total net sales between €11.0 billion and €12.0 billion and a gross margin between 55% and 57%.
ASML now expects 2026 total net sales to be between €43 billion and €45 billion, with a gross margin between 54% and 56%.
ASML now expects advanced Logic foundry-related net system sales to grow more than 25% in 2026. Memory-related net system sales are projected to increase more than 75%, driven by DRAM capacity additions and rising lithography intensity across EUV and DUV immersion technologies.
The company expects to ship around 65 Low NA EUV systems in 2026, supporting EUV net system sales growth of more than 45%. It also anticipates about 130 immersion DUV shipments and roughly 25% growth in non-EUV net system sales.
ASML plans to raise Low NA EUV and immersion capacity by approximately 30% in 2027. It is evaluating another 30% increase for 2028 as customer forecasts extend further into the future. The company is nearly fully covered by Low NA EUV orders for 2027.
ASML Shares Are Expensive
The stock is overvalued compared with its industry. It is currently trading at a price-to-earnings multiple of 41.67, higher than the industry average of 41.58 and the median of 33.4 over the past three years. It has a Value Score of F.
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ASML shares are more expensive than Applied Materials but cheaper than those of KLA Corporation.
The Case for ASML Stock
ASML continues to benefit from strong demand for wafer fabrication equipment, fueled by rising adoption of advanced semiconductors for AI data centers, hyperscale computing and other high-performance applications. Favorable end-market trends are expected to support a richer product mix, with increasing demand for advanced lithography systems and higher lithography intensity.
The company is well-positioned to address evolving customer requirements through its broad technology portfolio. ASML continues to expand its holistic lithography solutions, support 3D integration, improve the performance and cost efficiency of both deep ultraviolet (DUV) and extreme ultraviolet (EUV) systems, and advance EUV technology over the next decade, reinforcing its leadership in semiconductor manufacturing.
Artificial intelligence remains a major long-term growth driver. The rapid expansion of AI workloads is increasing demand for advanced GPUs, high-bandwidth memory and other leading-edge chips that rely heavily on EUV lithography, creating sustained growth opportunities for ASML's equipment business.
ASML also benefits from a strong financial profile. Its premium product portfolio, large installed base and recurring service revenues support healthy margins, consistent cash generation and greater earnings visibility. In addition, a substantial order backlog provides confidence in future revenue growth. The company remains committed to enhancing shareholder returns through a steadily growing dividend and ongoing share repurchases.
On the downside, competition within the semiconductor equipment industry is intensifying. A growing number of specialized equipment manufacturers, particularly in areas such as etching, are securing customer contracts by offering differentiated technologies and process expertise. Increasing competitive pressure could weigh on market share and pricing over time, although ASML's technological leadership and entrenched customer relationships remain significant competitive advantages.
Muted Analyst Sentiment on ASML
The consensus estimate for 2026 and 2027 earnings has moved 2 cents and 3 cents south, respectively, in the last seven days.
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The consensus estimate for KLA Corporation’s 2026 earnings witnessed no movement in the last seven days, while that for 2027 earnings moved 4 cents north in the same time.
The consensus estimate for Applied Materials’ 2026 and 2027 earnings has moved 2 cents and 17 cents north, respectively, in the last seven days.
Parting Thoughts on ASML Shares
ASML is well positioned for long-term growth, supported by its leadership in EUV lithography, a strong order backlog and sustained demand from AI, cloud computing and advanced semiconductor manufacturing.
However, given its premium valuation and muted analyst sentiment, it is better to avoid this Zacks Rank #4 (Sell) stock now.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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This article originally published on Zacks Investment Research (zacks.com).