ASML powers ahead as customer upgrades reinforce 20% upside potential

• 1Q26 results came in within guidance. Total net sales rose 13% year-on-year to EUR 8.8 billion, gross margin landed at the high end of guidance at 53%, and EPS came in at EUR 7.15 (+19% year-on-year).

• ASML raised its revenue guidance to EUR 36–40 billion (from EUR 34–39 billion previously). Non-EUV revenue is now expected to grow, reversing the prior flat outlook. 

• AI chip demand is outpacing supply, and the imbalance is expected to extend beyond 2026. Memory customers are already sold out for the year while logic customers are adding capacity across multiple advanced nodes. 

• We continue to like ASML for its unchallenged lithography monopoly, accelerating service revenue, and strengthening technology roadmap. We estimate an upside potential of 20% by 2028, which translates to a target price of USD 1,750.

A strong quarter with an even stronger outlook

ASML (NASDAQ:ASML) reported 1Q26 total net sales of EUR 8.8 billion, within its guided range and up 13.2% from the same period a year ago. Net system sales amounted to EUR 6.3 billion. This includes an EUR 4.1 billion contribution from EUV, of which two were High-NA machines while Non-EUV system sales made up the remaining EUR 2.1 billion. 

In terms of end-use products, system sales were split almost evenly between logic (49%) and memory (51%), a notable shift from the previous quarter where logic accounted for 70%.

Installed base management sales of EUR 2.5 billion came in slightly ahead of guidance and grew 24% year-on-year, making it the standout line of the quarter. 

Gross margin of 53% landed at the high end of guidance, supported by a favourable mix of high-margin service components. Net income rose 17.1% year-on-year to EUR 2.8 billion.

Table 1: ASML’s 1Q26 financial highlights

But the numbers in the table are not the real story this quarter — the outlook is.

For the full year, management raised its revenue guidance to EUR 36–40 billion, up from EUR 34–39 billion previously. This implies a 16.2% increase versus 2025 at the midpoint. Non-EUV revenue, which was previously guided to be flat, is now expected to grow driven by greater DUV demand. Looking further ahead, the company also expects Low-NA EUV capacity to scale from at least 60 systems in 2026 to at least 80 in 2027.

Crucially, these updated figures already take into account the potential outcomes of ongoing export control discussions, which should help to remove some of the uncertainty that has historically weighed on the stock.

AI continues to be the core driver, with customer data reinforcing this view

The structural story for rising chip demand has not changed since our last update, but the customer signals have become more compelling. Memory customers have told ASML they are sold out for the remainder of 2026, with supply constraints expected to persist beyond. Logic customers are also adding capacity across multiple advanced nodes while ramping 2nm production for next-generation HPC and mobile applications.

This trend is also showing up in the capex numbers across the supply chain. The five largest hyperscalers — Amazon, Microsoft, Alphabet, Meta, and Oracle are collectively guiding to over USD 600 billion in 2026 capital expenditure, up from around USD 388 billion in 2025. That is a ~55% year-on-year increase, with roughly 75% directly tied to AI infrastructure. From there, the capital flows downstream into leading-edge chips, new fabs, and ultimately ASML equipment.

Nowhere is this chain more visible than at TSMC, ASML’s largest customer. Just one day after ASML reported, TSMC lifted its 2026 capex guidance to the upper end of its USD 52–56 billion range, roughly 32% higher than 2025. The company’s CEO also described the demand backdrop as “a multiyear AI megatrend”. 

The same story is playing out in memory, which made up 51% of ASML’s system sales this quarter — an increase from 30% in 4Q25. Samsung is boosting HBM production capacity by approximately 50% in 2026, targeting 250,000 wafers per month by year-end. SK Hynix has raised its 2026 capex by 17% year-on-year to USD 20.5 billion, driven by HBM4 expansion at its M15X fab. 

The two Korean chipmakers have also signed a letter of intent with OpenAI to supply up to 900,000 DRAM wafers per month for the Stargate project, which is close to 40% of global DRAM output if fully realised. Memory has historically been a cyclical drag on ASML, but this cycle is different as HBM demand is now structurally anchored to AI and underpinned by a multi year growth trajectory.

Two forces are shaping the broader picture. The first is volume: as the world becomes increasingly digitalised, more wafers are needed to support applications such as AI, cloud computing, electric vehicles, and smart devices. As chip designs grow increasingly complex, each wafer requires more patterning steps, with a larger share shifting toward EUV. This drives incremental demand for EUV lithography equipment, creating a compounding tailwind alongside the expanding global fab base.

ASML’s own 2030 opportunity framework, set out at its November 2024 Investor Day, sees annual revenue of EUR 44–60 billion, with gross margins of 56–60%. The capex data emerging from customers over the past few months keeps that trajectory firmly on track.

ASML’s monopoly deepens while recurring revenue compounds 

The competitive landscape has not shifted. 

ASML remains the sole supplier of EUV lithography machines and holds an approximately 90% share in the high-end DUV market. Japan’s Nikon and Canon (two of ASML’s competitors) halted EUV development over a decade ago. China’s domestic lithography champion, Shanghai Micro Electronics, remains years behind and is still working to reliably mass-produce 28nm DUV tools, a technology ASML commercialised in the late 2000s. 

If anything, ASML’s technology moat is deepening. At the SPIE Advanced Lithography conference in February, ASML demonstrated a 1,000-watt EUV source, which is expected to enable Low-NA EUV throughput of 330 wafers per hour by the start of the next decade. The High-NA platform, ASML’s next-generation EUV system (which costs roughly double that of older EUV machines) is also ready for volume production after several years of development and customer validation. 

Installed base management revenue grew 24% year-on-year in 1Q26, materially faster than new system sales. Management has guided this segment to grow significantly in 2026, driven by the expanding EUV fleet and customer demand for performance upgrades.

Think of this segment like a subscription: ASML sells a machine once, then earns recurring income for decades by servicing it, upgrading its performance, and keeping it running. With each EUV system capable of generating service income for up to 30 years, the more machines ASML has in the field, the larger and more predictable this revenue stream becomes. Revenues for this segment also tend to be higher margin, and significantly less cyclical than new system sales, providing a more stable foundation for earnings.

We see an upside potential of 20% by 2028

Following the guidance raise, we roll our valuation base forward to 2028 which should better reflect the full revenue impact of the current capacity build-out. ASML is currently trading at approximately 26.7X 2028 estimated earnings, below our assigned fair multiple of 32X. This translates to an upside potential of around 20% (as of 22 Apr 2026) and a target price of USD 1,750. 

Putting it all together, ASML (NASDAQ:ASML) remains one of the most compelling long-term holdings in the semiconductor space. The guidance raise extends the runway, the technology roadmap reinforces the monopoly, and the growing installed base segment strengthens earnings resilience. For existing holders, we recommend staying invested. For investors without exposure, any near-term pullback should offer an attractive entry point to build positions in this stock.

Table 2: ASML expected to see robust earnings growth in the coming years

Figure 1: Share prices are driven by earnings in the long-term

Declaration:

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds a NIL position in the abovementioned securities. The analyst who produced this report holds a position in ASML. 

This research report was prepared with the assistance of artificial intelligence (AI) tools.  iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.