ASML beat estimates and raised guidance, with AI demand strengthening earnings visibility

Overview

This report is an earnings commentary by Morgan Stanley on ASML Holding NV. The title emphasizes "Notable Beat and Raise". The core conclusion is that ASML's Q2 performance, Q3 guidance, and FY26 guidance are all clearly better than expected. AI-related demand, customer capacity expansion, High NA adoption, and increased EUV system capacity all reinforce the investment case. Morgan Stanley classifies ASML as a Top Pick, assigns an Overweight rating, and sets a target price of €1,830.

Core views

The core view is that ASML's beat is not a one-quarter anomaly, but is supported by structural AI demand, improved fab/logic and storage capex backdrop, signs of long-term customer agreements, and progress on High NA adoption. The company expects LNA EUV system capacity of about 65 units in 2026, about 85 units in 2027, and about 110 units in 2028. Management provided above-consensus sales and margin guidance for Q3 and FY26, implying that market EPS expectations for the next 12 months may continue to be revised higher.

Analysis framework

The report compares actual results with market consensus, company guidance with market expectations, and focuses on revenue, gross margin, operating margin, order and demand commentary, customer capex expansion signals, and High NA rollout progress. For valuation, it applies a P/E multiple at the upper bound of a cyclical peak range to the FY28 EPS forecast to derive the target price.

Methodology notes

• Valuation methodsP/E Valuation Method

  P/E multiple applied to forward EPS

  Morgan Stanley applies a 35x P/E to its FY28 EPS estimate of €52.19 to value ASML at a target price of €1,830; 35x is at the upper end of its typical cyclical high-end valuation range of 30-35x.

• Earnings AnalysisActuals versus Consensus

  actuals versus consensus

  The report compares Q2 revenue, gross margin, and Q3 and FY26 guidance against market consensus and Morgan Stanley's estimates to gauge the magnitude of the beat and the direction of future profit estimate revisions.

Asset mapping & comparison

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

• ASML Holding NV equity

  Core coverage name, benefiting from AI-driven semiconductor capex and EUV/High NA demand.

  Strengths

  Q2 beat expectations, raised Q3 and FY26 guidance, margin expansion, stronger signs of customer capacity expansion, and faster-than-expected progress on High NA adoption.

  Weaknesses

  Valuation is already set at the upper end of the cyclical range; investment return is sensitive to FY28 EPS realization, sustainability of semiconductor capex, and the pace of High NA adoption.

  Comparison

  Within Technology - European Semiconductors coverage, it is listed as Top Pick, with a rating of Overweight and sector view of In-Line.

  Risks

  End-demand could weaken, advanced-node/DRAM capex may be weaker than expected, weak China demand or delayed orders, and slower-than-expected High NA adoption may pressure valuation multiples.

Key data

• Q2 Revenue€9.3bnApproximately 6% above market consensus.
• Q2 Gross Margin54%Above both market expectations and the company's previous guidance.
• Q3 Revenue Guidancearound €11-12bn; the report also cites €11.5bnAbove market expectation of about €10.3bn.
• Q3 Gross Margin Guidance55-57%Above market and Morgan Stanley expectations of around 52%.
• FY26 Revenue Guidancearound €44bnApproximately 34% year-over-year growth, above Morgan Stanley estimate of €39.4bn.
• FY26 Gross Margin Guidancearound 55%About 260 bps above consensus.
• Implied Q3 Operating Profitaround €4.8bnWith R&D guidance of about €1.2bn and SG&A guidance of about €400m, operating margin is around 42%, above the market estimate of around 37%.
• LNA EUV System Capacity Planaround 65 units in 2026; around 85 in 2027; around 110 in 2028The company will materially increase LNA EUV system capacity.
• Target Price€1,830.00Based on 35x FY28 P/E and FY28 EPS estimate of €52.19.
• Closing Price€1,555.80As of 14 Jul 2026.

Impact & implications

The report argues that ASML's raised guidance could materially lift consensus EPS expectations over the next 12 months and reinforce its status as a core beneficiary in European semiconductor equipment. AI-related capex, advanced-node manufacturing expansion, accelerated High NA adoption, and service margin recovery could all support valuation staying at the upper end of the cyclical valuation range.

Risks

• A sharp slowdown in end demand from foundry and DRAM markets.
• A high inflation regime and weak China demand leading to industry deceleration and further order delays.
• High NA adoption not occurring or being delayed, especially if DRAM does not adopt until after 2028, which could suppress valuation multiples.
• If logic/foundry capex, HBM/DRAM spending, or technology sovereignty initiatives underperform expectations, the target-price thesis could weaken.
• Morgan Stanley discloses that it may have investment banking and/or other business relationships with covered companies; investors should treat this report as only one factor in investment decisions.

What to watch

• Whether Q3 revenue reaches the €11-12bn guidance range and whether gross margin stays at 55-57%.
• The delivery of FY26 guidance of around €44bn in revenue and around 55% gross margin.
• Whether AI-related customer orders, long-term agreements, and capacity expansion commitments continue to strengthen.
• Whether High NA adoption progresses faster than expected in Intel 18A and other scenarios.
• Whether LNA EUV capacity expansion proceeds as planned: about 65 units in 2026, about 85 in 2027, and about 110 in 2028.
• Whether logic/foundry, HBM, and DRAM capex continues to rise.
• Whether ASML discloses medium- to long-term strategy and capacity planning at the CMD on 10 Jun 2027.