Few stocks capture the entire AI capex cycle as cleanly as ASML. When chipmakers commit to building capacity for the next decade, ASML sits at the very end of that decision chain. So when its shares jump nearly 90% in six months, it isn’t just a rally it’s the market aggressively repricing future certainty.
The Story
The rally didn’t come out of nowhere. ASML has been riding a powerful wave of AI-driven capital expenditure. When companies like TSMC announce multi year and multi billion euro capex plans, that optimism doesn’t stop at chipmakers. It flows downstream straight into ASML’s order book. Over the past few months, this has even changed management’s tone. For a company known for conservative guidance, ASML has sounded unusually confident.
That combination, a low starting valuation, improving sentiment, and AI led capex visibility pushed ASML into a near €500 billion market cap company.
But when a stock nearly doubles in half a year, it’s fair to pause. That pace of return isn’t normal, and it isn’t sustainable forever. This doesn’t automatically mean selling. But it does mean reassessing opportunity cost. If gains are pulled forward this aggressively, future returns mathematically have to be lower unless growth surprises even more.
With that backdrop, expectations going into earnings were high. And yet, ASML still managed to exceed them.
Q4 and Full Year Performance
For Q4, ASML had guided for revenue of €9.2–9.8 billion and gross margins of 51–53%. The company delivered €9.7 billion in revenue and a 52.2% gross margin, landing near the top end of guidance.
But the real headline was bookings.
Net bookings surged to €13.2 billion, more than double the €5.4 billion recorded in Q3 and far ahead of analyst expectations of around €6.3 billion. This sharp jump reflects something important and that is AI demand has moved from narrative to execution.
Management explained that while AI enthusiasm has been building for years, customers had been cautious about translating it into actual capacity expansion. That changed in the last quarter. Chipmakers across logic and memory have begun committing to long-term capacity plans, and those plans flow directly into ASML’s shipment pipeline.
This shift in behavior is crucial. ASML sits at the very end of the semiconductor investment chain. Its customers only place orders once confidence is extremely high. When that order book accelerates, it usually signals a multi-year upcycle rather than a short-term blip.
What the Numbers Say About the Cycle
Management expects Q1 revenue of €8.2–8.9 billion, implying roughly 10% year-on-year growth. For full-year 2026, guidance stands at €34–39 billion, or about 12% growth at the midpoint.
For 2025, ASML delivered revenue of €32.7 billion, up 16% year-on-year. That growth came with a notable shift in mix. The company sold fewer systems overall, 327 units versus 418 the previous year but this was not a slowdown. It was a transition.
EUV systems, which are vastly more complex and expensive, drove the growth. EUV revenue rose 39% to €11.6 billion from just 48 systems. Meanwhile, DUV revenue declined modestly, reflecting softer demand outside the most advanced nodes. Installed base revenue grew strongly as well, highlighting the recurring nature of service and upgrade income.
AI is increasing lithography intensity. More EUV layers are being used per chip, which structurally raises ASML’s revenue per wafer even without unit growth.
Cash generation remained exceptional. Operating cash flow reached €12.7 billion, and free cash flow came in at €11 billion. At current prices, however, that still translates to a free cash flow yield of roughly 2.4% with excellent quality, but no margin for disappointment.
Geography, Visibility, and Structure
China remained a significant contributor, accounting for 36% of system sales in Q4 and roughly 29% of total revenue for the year. Management expects this to normalize to about 20% in 2026, reflecting backlog digestion rather than demand destruction. Even at normalized levels, China remains a material revenue stream.
Perhaps the most important takeaway is visibility. After a year of uncertainty, customers are now committing to capacity expansion. ASML’s backlog stands at a record €38.8 billion, providing strong revenue clarity well into 2026.
The company also announced an internal restructuring, cutting management layers to improve agility and redirect resources toward engineering. It’s a subtle but important signal that ASML is optimizing for long-term innovation, not just short-term margins.
So… Should You Buy ASML Now?
ASML remains one of the highest quality businesses in global equities, with unmatched competitive positioning and structural growth drivers from AI and advanced computing. However, at current valuations, future returns are likely to be more moderate than what the last six months delivered.
For long term investors, ASML is still a hold or accumulate on corrections kind of stock, not an aggressive fresh buy after a near doubling. If you don’t own it, patience matters. If you already do, trimming to rebalance risk and not exiting may be the more rational move. The business is exceptional. The price just no longer leaves much room for error.
To view the company’s previous earnings and latest concall transcripts, click here to visit the Alphastreet news channel.