ASML has not gotten cheaper. Our earnings estimates have gotten bigger

• In 2Q26, ASML reported net sales of EUR 9.3 billion, exceeding the high end of its guidance and representing year-on-year growth of 21.3%. Reflecting stronger-than-expected demand, management raised full-year 2026 revenue guidance to EUR 43–45 billion, up from EUR 34–39 billion in January. 

• Memory accounted for 49% of net system sales in 2Q26, up from roughly 30% in 4Q25. Memory-related system sales are guided to grow over 75% this year, against approximately 25% for logic.

• Installed base management sales rose 31.8% to EUR 2.8 billion, around EUR 300 million ahead of guidance and well clear of the 17.3% growth in new system sales. Management guides the segment to grow over 30% for the full year.

• ASML plans to add 30% to its Low-NA EUV and DUV immersion capacity in 2027, and potentially another 30% in 2028. Management also indicated that its 2027 Low-NA EUV capacity is close to being fully booked and that it has already secured a significant number of orders for 2028.

• In light of these developments, we are reinstating our buy rating on ASML. Based on the closing price as of 16 July 2026, our target price of USD 2,266 implies an upside potential of approximately 27%.

A beat on every line, and a guidance raise that dwarfs the beat

ASML (NASDAQ: ASML) reported 2Q26 total net sales of EUR 9.3 billion, above the high end of its guided range and 21.3% higher year-on-year. Net system sales of EUR 6.6 billion included EUR 3.8 billion from EUV. Gross margin came in at 54.0%, again above guidance, helped by high-margin components inside the installed base business. Net income rose 27.4% to EUR 2.9 billion, representing 31.3% of total net sales. 

Table 1: ASML’s 2Q26 financial highlights

But the beat is not the story. The guidance is.

Management now expects full-year net sales of EUR 43–45 billion with gross margin of 54–56%. Three months ago that range was EUR 36–40 billion; in January, EUR 34–39 billion. ASML has walked its 2026 outlook up by EUR 7.5 billion at the midpoint since January, and it has narrowed the range from EUR 4 billion wide to EUR 2 billion, which is its own statement about visibility (Figure 1). Third-quarter guidance of EUR 11.0–12.0 billion, against EUR 7.5 billion in 3Q25, implies around 53% growth.

Figure 1: ASML has raised its 2026 guidance twice in six months

The driver is straightforward and management stated it plainly: rising end-market demand pushed customers to raise capex and pull plans forward, and ASML’s supply chain could meet the requests. 

Memory has gone from cyclical drag to co-equal engine

For most of the past decade, memory was the part of ASML’s business investors discounted. Not this cycle.

Memory accounted for 49% of net system sales in 2Q26, up from roughly 30% in 4Q25. Across the first half of the year, both logic and memory system sales totaled EUR 6.4 billion each, versus a EUR 7.2 billion to EUR 4.2 billion logic skew a year earlier. Management guides memory-related system sales to grow over 75% this year, against around 25% for advanced logic foundry.

Two forces are behind it. DDR and HBM pricing has prompted significant fab expansion, with multiple megafab projects set to come online over the next few years, according to customers. More durably, DRAM lithography intensity is rising as customers migrate to advanced nodes, with more EUV exposures required as chip designs become increasingly complicated. 

While capacity additions may be cyclical, lithography intensity is not. The number of lithography steps per wafer and overall process complexity continue to trend higher structurally, even if memory pricing normalises.

The installed base business is compounding faster than the machines

This is the part of the thesis we have argued longest, and it delivered the largest surprise of the quarter.

Installed base management sales hit EUR 2.8 billion, roughly EUR 300 million above guidance and up 31.8% year-on-year, comfortably outpacing the 17.3% growth in new system sales. Management guides the segment to grow over 30% for the full year, and to around EUR 2.9 billion in 3Q26.

The upgrade business is doing the heavy lifting. Crucially, much of it is software-led, meaning customers get an instant productivity uplift without surrendering machine time. In an environment where every wafer is spoken for, customers will take any output they can get, and ASML is deliberately widening the upgrade catalogue to sell into that. Alongside this sits the service annuity from an EUV fleet that keeps growing, with each system capable of generating income for decades.

The result is a revenue stream that is recurring, higher margin, and materially less cyclical than machine sales. It is why ASML’s gross margin guidance keeps moving up alongside its revenue guidance.

Capacity and orders extend visibility into 2028

ASML expects to ship around 65 Low-NA EUV systems this year, driving EUV system sales growth of more than 45%. It plans to increase Low-NA EUV production capacity by approximately 30% in 2027 and is evaluating a further 30% expansion in 2028. Immersion systems are following a similar trajectory, with production based on roughly 130 systems expected to increase by 30% in 2027 and potentially by another 30% in 2028.

ASML indicated that its Low-NA EUV production capacity for 2027 is close to being fully booked and that it has already secured a significant number of orders for 2028. Order intake stayed extremely strong through the first half, backlog is growing across a broad customer mix, and customers are sharing multi-year forecasts because their own customers are signing long-term agreements.

High-NA EUV took another step forward on the same day. Intel Foundry has qualified ASML’s High-NA EUV on select 18A product layers to produce a subset of its Core Ultra Series 3 processors — the first high-volume logic product made with the platform. Management describes the tool’s maturity as improving toward the levels required for insertion into high-volume manufacturing, and expects to open discussions with customers on when that insertion happens. TSMC's eventual adoption, which we identified in May and reiterated in June as an unpriced catalyst, still lies ahead and remains a question of when, not if.

Chip demand is robust, and Asia is where it lands

Look at where the machines went. In 2Q26, South Korea took 43% of net system sales and Taiwan 30% — 73% between them, against China’s 14% and the US’s 9% (Figure 2). Across the first half, South Korea alone accounted for EUR 7.1 billion of ASML’s EUR 18.1 billion in net sales, up over 60% year-on-year.

Figure 2: South Korea and Taiwan account for 73% of ASML’s 2Q26 net system sales

ASML sells the most indispensable tool in chipmaking, and three-quarters of it is being installed in Korea and Taiwan. That is hard confirmation that SK Hynix and Samsung in memory, and TSMC in advanced logic, are where the AI build-out actually happens.

Across the broader industry, this points to where the relative opportunity lies. Asian semiconductor companies trade at about 11.3x forward 12m earnings versus roughly 24.8x for US listed peers, a discount that endures even though Asia controls the bottlenecks that underpin the entire cycle. As hyperscalers increasingly adopt custom ASICs, dependence on individual US chip designers becomes less certain, but reliance on Asian foundry and memory capacity does not. Investors seeking diversified exposure to this theme may consider the Global X Asia Semiconductor ETF (HKEX: 3119).

We see upside of 27% by 2028

In our previous update, we had already factored in one guidance upgrade and a 2027 capacity expansion. Since then, ASML has delivered a second, much larger guidance raise, outlined a 2028 capacity expansion, disclosed an order book extending into 2028, and qualified High-NA EUV on a production logic chip. These developments materially strengthen the earnings outlook.

Accordingly, we have raised our earnings estimates to reflect the stronger outlook. Applying our fair PE multiple of 32x results in a target price of USD 2,266, implying 27.2% upside from the closing price on 16 July 2026.

Notably, ASML's share price remains close to where it traded when we called for profit taking in June. Our decision to reinstate our buy rating is therefore driven by a stronger earnings outlook, rather than falling share prices.

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

Figure 3: Share prices are driven by earnings in the long term

Putting it all together, we are moving ASML (NASDAQ: ASML) back to a buy. Although the stock is not cheap relative to this year's earnings, the earnings outlook has improved far more than the share price has reflected. That is the basis of our renewed positive view.

For investors who took profits following our June recommendation, we believe this represents an attractive re-entry point. For those already invested, we would continue to add on weakness. Investors seeking a lower-cost way to participate in the semiconductor upcycle may also find compelling opportunities across the Asian semiconductor supply chain, which stands to benefit from the same demand driving ASML's order book.

Related Article: ASML has crossed our USD 1,750 target. Time to take profits, but not walk away entirely.