Bernstein names ASML its Best Idea for the third quarter of 2026, maintains Outperform and sets a €2,500 target price

Overview

This is a Bernstein company research report on ASML Holding NV. The report names ASML its Best Idea for the third quarter of 2026 and maintains an Outperform rating with a €2,500 target price. The core view is that AI-related semiconductor capex is driving a WFE upcycle, advanced-node and DRAM migrations are increasing lithography intensity, and EUV, DUV, and High-NA EUV together are expanding ASML's share of addressable equipment spending; meanwhile, product-generation upgrades and potential like-for-like price increases create upside to revenue and margins that is not fully reflected in estimates.

Core views

The report's core views include: First, ASML has the strongest growth visibility in the semiconductor equipment chain because lithography intensity in advanced logic and DRAM is significantly higher than in mature logic and NAND, with blended lithography intensity expected to rise from 24% to 28% by 2028. Second, DRAM is becoming a more important growth driver for ASML after logic, with memory systems accounting for approximately 50% of recent system sales and 2026 memory systems sales expected to grow by more than 75% YoY. Third, EUV adoption continues to drive share gains in lithography, with DRAM EUV exposures expected to increase 4.5x over the next five years and logic EUV exposures also expected to grow more than 3x. Fourth, DUV demand is underestimated: DUV still accounts for approximately 50% of lithography spending in DRAM, while China remains highly dependent on DUV because of EUV restrictions and insufficient domestic DUV capabilities. Fifth, concerns about Chinese domestic ArFi competition are considered excessive: ASML's China revenue share declined to 16% in the first half of 2026, and there is no evidence that domestic tools can yet compete with ASML in throughput, overlay, yield, and stability. Sixth, the valuation risk/reward is attractive, with the current share price at approximately 20x Bernstein's 2028 EPS and the target price implying more than 80% upside.

Analysis framework

The report combines top-down and bottom-up approaches: it first assesses total semiconductor equipment demand based on the AI-driven WFE cycle and advanced-node migration, then breaks down lithography-intensity differences across DRAM, advanced logic, mature logic, and NAND; it subsequently evaluates ASML system demand, capacity expansion, pricing, and margin leverage across EUV, DUV, and High-NA EUV technology paths; finally, it assesses risk/reward by comparing revenue growth, EPS growth, and forward P/E valuations with WFE peers including LRCX, AMAT, TEL, and KLAC.

Methodology notes

• Industry cycle analysisWFE upcycle and lithography intensity analysis

  Combines total WFE growth with rising lithography intensity to estimate ASML's addressable share of equipment spending.

  The report believes AI-related advanced logic and DRAM investment is driving a WFE upcycle, while the lithography intensity of these areas is significantly higher than that of mature logic and NAND, allowing ASML's growth to exceed overall WFE growth.

• Technology roadmap analysisEUV/DUV/HNA adoption roadmap

  Assesses EUV layer counts, supporting DUV demand, and the pace of High-NA EUV introduction based on DRAM and logic-node migration.

  The report tracks DRAM nodes including 1a, 1b, 1c, 1d, and 0a/0b, as well as logic nodes including 10nm, 5nm, 3nm, 2nm, 1.4nm, and 1nm, to assess how EUV exposures, DUV demand, and HNA adoption will change lithography capex.

• Valuation and earnings forecastsPeer relative valuation and earnings upside

  Compares ASML's revenue growth, EPS growth, forward P/E, and historical valuation premium with WFE peers.

  The report believes ASML is growing significantly faster than its peers, while its current valuation premium has largely disappeared, with one-year forward P/E at approximately 31x and two-year forward P/E at approximately 23.5x, creating an attractive risk/reward profile.

Asset mapping & comparison

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

• ASML Holding NV

  Core covered company and recommended security

  Strengths

  Unique market position in EUV and high-end lithography, benefiting from the AI-driven WFE upcycle, rising DRAM and advanced logic lithography intensity, structural DUV demand, High-NA EUV adoption, and potential price increases.

  Weaknesses

  In the short term, it is affected by concerns about Chinese DUV competition, WFE cycle volatility, capacity bottlenecks, and valuation fluctuations.

  Comparison

  The report expects ASML's 2025-2028 revenue CAGR to be 30%, above LRCX at 26%, AMAT at 25%, TEL at 23%, and KLAC at 21%; however, its valuation premium has largely disappeared, with one-year forward P/E slightly below the WFE average.

  Risks

  A slowdown in AI capex, weaker-than-expected DRAM expansion, delayed High-NA EUV adoption, changes in DUV competition or export restrictions, and weaker-than-expected price realization.

• WFE peers: LRCX, AMAT, TEL, KLAC

  Valuation and growth comparison group

  Strengths

  They also benefit from an upturn in semiconductor capex.

  Weaknesses

  The report believes their revenue and EPS growth is below ASML's and that they lack ASML's scarcity value in critical lithography.

  Comparison

  ASML's projected revenue CAGR and EPS growth both significantly lead WFE peers, but its current forward P/E does not reflect the historical peer premium of approximately 60%.

  Risks

  If non-lithography equipment demand grows faster, or if ASML's lithography-intensity assumptions prove overly optimistic, its relative advantage could narrow.

• Chinese DUV lithography vendors

  Potential competitive variable

  Strengths

  They are supported by localization policies and may gradually increase supply in mature DUV.

  Weaknesses

  The report believes domestic ArFi tools still struggle to compete with ASML in throughput, critical dimension, resolution, overlay accuracy, uptime, and production consistency.

  Comparison

  The report compares them with Nikon, which has long failed to close the gap with ASML in ArFi, and believes the near-term threat to ASML is limited.

  Risks

  If domestic DUV tools improve rapidly and gain large-scale production validation, they could pressure ASML's China DUV demand and long-term market share.

Key data

• RatingOutperformBernstein maintains an Outperform rating on ASML and calls it its top pick in European semiconductors.
• Target price€2,500The target price implies approximately 84% upside versus the July 29, 2026 closing price of €1,362.20.
• Closing price€1,362.20The table discloses the July 29, 2026 closing price for ASML.NA.
• Lithography intensity forecast24% to 28% by 2028The report expects blended lithography intensity to continue rising, driven by a higher contribution from DRAM and advanced logic.
• DRAM lithography intensityApproximately 26% for 1c, approximately 30% for 1dHigher DRAM EUV layer counts and the potential introduction of double-patterning EUV or HNA at the 1d node are expected to increase lithography intensity.
• Logic lithography intensityApproximately 32% for 2nmAlthough intensity declines from 3nm to 2nm due to the introduction of GAA, it remains high, while future HNA adoption and 1nm nodes may drive another increase.
• 2026 memory systems sales growth>75% YoYASML management guides to memory systems sales growth significantly exceeding the approximately 25% growth expected for advanced logic/foundry.
• Memory systems sales mixApproximately 50%Memory's share of systems sales in recent quarters has risen from approximately 30% historically to approximately 50%.
• DRAM EUV exposure growth4.5x over the next five yearsThe report expects total DRAM EUV exposures to rise from approximately 3.4 MWPM in 2025 to 26.3 MWPM in 2030.
• DUV:EUV capex ratioApproximately 1:1The report believes that, on a blended basis, every US$1bn of EUV spending corresponds to approximately US$1bn of DUV capex.
• China WFE demandApproximately US$77bn in 2028The report expects China's WFE demand to grow at a CAGR of more than 15% over the next three years.
• ASML China revenue share16% in the first half of 2026The report says this is the lowest level among WFE peers, while management expects approximately 20% for full-year 2026.
• Capacity expansionEUV from 65 systems to approximately 110 by 2028; ArFi from 130 systems to approximately 220ASML plans to expand annual EUV and immersion DUV capacity by approximately 30% through 2028, with HNA capacity reaching approximately 20 systems in 2027/28.
• EUV ASP assumptionsApproximately +10% in 2027, approximately +7% in 2028The report believes productivity improvements and migration to next-generation EUV systems will drive pricing increases, excluding broad like-for-like price increases.
• 2030 margin forecast60% gross margin, 50% operating marginThese are above consensus estimates of 59.1% gross margin and 46.7% operating margin.
• EPS versus consensus22% above consensus in 2029, 41% above consensus in 2030Bernstein believes the market continues to underestimate ASML's long-term earnings leverage.
• Revenue forecast€32.7bn in 2025 to €71.9bn in 2028This implies approximately 30% CAGR, above WFE peers including LRCX, AMAT, TEL, and KLAC.

Impact & implications

If the report's thesis is realized, ASML will benefit not only from the overall WFE expansion driven by AI, but also from above-industry revenue growth as lithography intensity rises in advanced logic and DRAM; combined demand for EUV, DUV, and High-NA EUV will improve medium-term order and capacity visibility; product upgrades and potential price increases may further lift gross margin, operating margin, and EPS. For investors, the report emphasizes that the current valuation does not fully reflect ASML's growth quality and pricing power, making the risk/reward more attractive after the share-price correction.

Risks

• AI-related semiconductor capex or the WFE upcycle may be weaker than expected.
• DRAM expansion, HBM construction, or advanced-node migration may fall short of expectations, slowing the increase in lithography intensity.
• The pace of High-NA EUV adoption among DRAM or logic customers may be delayed, weakening medium- to long-term demand leverage.
• ASML's capacity expansion may fail to match EUV, DUV, and HNA demand, or supply-chain constraints may cause delivery delays.
• EUV ASP increases and like-for-like price increases may fall short of expectations, limiting margin expansion.
• Chinese domestic DUV tools may advance faster than expected, or changes in export-control policies may affect ASML's China revenue.
• A valuation re-rating may not occur, with the market continuing to value ASML as a WFE cyclical stock.

What to watch

• Whether 2026 memory systems sales growth approaches or exceeds management's guidance of 75% YoY.
• Whether adoption of the DRAM 1c and 1d nodes and EUV layer counts increase in line with the report's assumptions.
• High-NA EUV adoption schedules and order signals from SK hynix, Samsung, Intel, and TSMC.
• Whether ASML can achieve its EUV, ArFi, and HNA capacity-expansion targets, particularly the capacity ramp in 2027 and 2028.
• ASP increases from the migration of EUV 3800E to the F generation, and whether broader like-for-like price increases emerge.
• China's WFE demand, the mass-production performance of domestic ArFi tools, and whether ASML's China revenue share remains at a low level.
• Whether ASML's forward P/E premium relative to WFE peers returns.