ASML can't keep up with production. And that is the best news from its results
ASML published third-quarter results and I see not just beaten estimates. I see a company hitting the ceiling of its own production.
Numbers worth noting:
- Revenue €11.66 billion (estimate €11.56 billion)
- Earnings per share (EPS) €12.95 (estimate €10.60), more than 20% above estimate
- Gross margin 57.5% (estimate 54.8%)
- Net profit €5.0 billion (estimate €4.06 billion)
Revenue beat estimates only narrowly. The main thing showed in the margin. Gross margin says how much of each euro of revenue remains with the company after paying for production. When it comes in almost 3 percentage points above expectations, it means enormous pricing power. Customers pay because they have no choice. ASML has a monopoly on EUV lithography, without which the most advanced chips cannot be made.
The outlook is even stronger. For the fourth quarter, the company expects revenue of €14.2–15.2 billion (the market expected €13.8 billion) and a margin around 57%. It raised its full-year outlook to €44–45 billion.
The most important sentence of the whole report
Management openly admitted that planned production in 2027 and 2028 will not cover demand. And it already counted on a 30% capacity increase. Now it is looking for ways to go even higher.
This is key for me. ASML doesn't have to convince TSMC $TSM, Samsung $SSNLF or Intel $INTC to buy its machines. They are queuing for them. A company whose main problem is that it can't keep up with production is in a completely different position than a company fighting for every order. Moreover, it returns money to shareholders from profit: roughly €4.1 billion in share buybacks in the quarter, and the interim dividend comes to €1.88 per share.
Where I see risk
Semiconductors are cyclical. Today demand is driven by AI, but as soon as investments in data centers slow down, machine orders will feel it first. On top of that, there are export restrictions to China. Strong numbers do not mean the stock cannot fall. They mean that the business behind it is healthy.
