ASML Holding NV (ASML) Report Interpretation

Overview

Morgan Stanley previews ASML’s 3Q26 results and argues that near-term earnings are likely to exceed expectations, supported by memory and logic-foundry demand, improving margins and capacity flexibility. The institution remains constructive on 2026–27 but says the pace of growth into 2028 remains less certain.

Core views

Morgan Stanley expects ASML’s 3Q26 results to exceed the upper end of company guidance. Its €12.3bn sales estimate is about 5% above consensus of €11.7bn, driven by sustained momentum in both memory and logic foundries. It forecasts €9.4bn of system sales and €2.9bn of IBM sales, a 56.2% gross margin—21 basis points above consensus—and diluted EPS of €11.75, around 8% above the Street’s €10.84. For 4Q26, it expects €14.5bn of sales, a 57.0% gross margin and €14.51 EPS, implying a strong year-end even though another material increase to FY26 guidance appears less likely after management’s prior upgrade. The report’s central debate is less the quarter itself than management’s comments on capacity and China. Morgan Stanley argues that capacity concerns are overstated: recent manufacturing efficiencies should offer more flexibility, and the firm expects FY27 capacity guidance to rise to 90+ EUV tools. It also expects ASML to reaffirm 2028 capacity of at least 110 low-NA systems. Its own shipment assumptions are 98 EUV tools in FY27 and 103 in FY28. However, it distinguishes available capacity from ultimate demand, stating that whether demand reaches those levels is still uncertain. The planned 2028–29 Brainport Industries Campus build-out is expected first to support DUV production and later EUV manufacturing, expanding capacity potential beyond 2029. On China, the report acknowledges competition concerns and possible export restrictions as valuation constraints, but argues that the market may be overlooking demand from emerging Chinese memory producers. Morgan Stanley’s Asia-Pacific colleagues expect China’s memory industry to gain share by 2028, with CXMT potentially exceeding Micron’s DRAM capacity and YMTC becoming a global number-two or number-three NAND supplier. Global DRAM capacity is projected at 3,374kwpm in 2028, with CXMT potentially accounting for about 500kwpm, or 15%. Morgan Stanley believes this development could become an underappreciated DUV-demand tailwind in FY27–28. The institution raises its 2026 sales/EPS forecasts by 4%/7% and its 2027 forecasts by 9%/14%, citing value-based pricing, broadening foundry demand, DUV and EUV sales growth, and IBM growth. It raises 2028 sales/EPS by 7%/10%, primarily because of the higher 2027 base, but does not yet see evidence that growth will accelerate further. Its FY26 model calls for €45.0bn revenue, at the upper end of company guidance, 55.3% gross margin, and €41 of earnings power, respectively 30 basis points and 5% above consensus. The report expects demand for 3/2nm logic transitions and 1a/b memory transitions, higher throughput and service revenue, and supply-chain management to support margins. Morgan Stanley retains Overweight and Top Pick status with a €1,700 target price. It argues that ASML is valued too cheaply at 25x FY28 EPS and applies a 27x P/E multiple, the upper end of its 24–27x mid-cycle range, to FY28 EPS of €62.32. The base case assumes recovery at the leading foundry customer, solid HBM/DRAM demand and better-than-feared China demand. The bull case reaches €2,600 using about 40x FY28 EPS of about €65, assuming rapid order growth, broad capacity expansion, limited export-control effects, successful High-NA adoption and gross margin approaching 60%. The bear case is €750, based on about 20x FY28 EPS of about €37.5, if advanced-node equipment demand stalls and industry spending weakens.

Analysis framework

Morgan Stanley combines its company operating model with a comparison against consensus estimates, then tests the earnings outlook through system and IBM sales, gross-margin assumptions, EUV capacity, memory and logic demand, China exposure, and valuation scenarios. It derives the target price by applying a P/E multiple to its FY28 EPS forecast.

Methodology notes

• Valuation methodsP/E and PEG Valuation

  P/E multiple valuation

  Morgan Stanley applies a 27x P/E multiple to FY28 EPS of €62.32 to derive its €1,700 target price, and presents bull and bear cases with different earnings and valuation multiples.

• Industry AnalysisSupply-demand framework

  Semiconductor equipment demand and production-capacity analysis

  The report links memory and logic-foundry demand, customer capacity additions, EUV/DUV tool supply and China demand to ASML’s sales and margin outlook.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• ASML Holding NV (ASML.AS, ASML NA)

  Primary covered company; expected to benefit from stronger memory and logic-foundry demand, DUV/EUV sales growth and margin expansion.

  Strengths

  Dominant supplier of critical semiconductor-manufacturing toolsets; expected capacity flexibility, stronger foundry demand, memory pricing power and growing service revenue.

  Weaknesses

  2028 growth acceleration remains unproven, and lithography intensity flattening over 2024–26 may cap earnings in the interim.

  Comparison

  Morgan Stanley expects CXMT to surpass Micron in DRAM capacity and YMTC to become a global number-two or number-three NAND player by 2028, which it views as potential DUV-demand support for ASML.

  Risks

  China competition and export restrictions, slow EUV order-book expansion, delayed High-NA sales, and weaker foundry or DRAM demand.

Key data

• 3Q26 sales estimate€12.3bnAbout 5% above consensus of €11.7bn and above the upper end of guidance.
• 3Q26 diluted EPS estimate€11.75About 8% above consensus of €10.84.
• 3Q26 gross margin estimate56.2%21 basis points above consensus.
• FY26 revenue estimate€45.0bnAt the upper end of company guidance; Morgan Stanley models 55.3% gross margin and €41 earnings power.
• Estimate revisions2026 sales/EPS +4%/+7%; 2027 +9%/+14%; 2028 +7%/+10%Revisions reflect stronger DUV/EUV and IBM growth, pricing and demand assumptions.
• FY28 EPS and valuation€62.32 and 27x P/EProduces the €1,700 target price and 20% implied upside.
• EUV shipment assumptions98 tools in FY27; 103 tools in FY28Morgan Stanley expects FY27 capacity guidance of 90+ tools and 2028 capacity of at least 110 low-NA systems.

Impact & implications

The report expects stronger-than-consensus quarterly results and upward earnings revisions to support ASML, while management’s capacity and China commentary may determine whether the market accepts the longer-term growth outlook. It views 2026–27 fundamentals as supportive but retains caution on whether 2028 growth can accelerate.

Risks

• Potential export restrictions and competitive concerns in China may constrain ASML’s valuation multiple.
• Demand may not ultimately absorb the 2028 capacity that ASML could supply.
• A weaker advanced-node equipment cycle, particularly in foundry and DRAM, could reduce sales and earnings.
• Slow EUV order-book expansion or a delay in initial High-NA sales could pressure estimates.
• Inflation and Chinese weakness could lead to slower demand and more order push-outs.

What to watch

• 3Q26 order-book commentary and whether management raises FY27 EUV capacity guidance toward 90+ tools.
• Whether management reaffirms 2028 low-NA EUV capacity at or above 110 systems.
• Progress in value-based pricing for the NXE:3800E-to-3800F/3800G transition and the timing of ASP uplift.
• China revenue as a share of system sales over the next 12–18 months and Chinese customers’ DUV bookings for 2027–28.
• The mix and durability of IBM growth, including recurring service contracts versus one-off upgrades.
• Management’s capital-allocation priorities between share repurchases and targeted M&A.