On the eve of ASML's earnings report, Morgan Stanley remains firmly bullish: Q4 orders surged, and 2027 will be a breakout year for performance.

Dutch lithography giant ASML will release its financial report this Wednesday (January 28). Morgan Stanley expects the company to post strong order data, while market focus is shifting from 2026 to 2027, which could become a key breakout year for the company’s performance.

According to Chasing Wind Trading Desk, Morgan Stanley’s latest research maintains ASML as “Overweight” (Top Pick) with a €1,400 target price. Analyst team led by Lee Simpson stated in the report that ASML’s Q4 orders are expected to reach €7.27 billion, including 19 EUV low numerical aperture systems, significantly above previous market expectations of over €5 billion.

Regarding guidance, the analyst team emphasized that the market has largely absorbed the narrative of moderate growth in 2026, and a 10% revenue growth guide would satisfy the market; the real investment opportunity lies in 2027—the key breakout year for ASML’s performance.

Morgan Stanley expects that EUV equipment demand for ASML may reach 80 units in 2027, driving revenue up to €46.769 billion, a YoY increase of 28%. Gross margin is expected to improve to 56%. This expectation is based on TSMC’s early ramp-up of A14 process capacity, large-scale catch-up investment by DRAM manufacturers, and demand recovery from logic chipmakers (including Intel and Samsung).

Order Expectations Raised Sharply: Jumping from €5 Billion to €7.2 Billion

Morgan Stanley expects ASML’s Q4 orders to reach €7.27 billion, including 19 EUV low numerical aperture systems. This expectation is a significant increase compared to the over €5 billion and 10–15 EUV machines predicted by investors in December last year.

Analysts point out that recent communication with buy-side institutions shows market expectations have risen to about 20 EUV units and over €7 billion.

It is noteworthy that this will be the last time ASML publishes quarterly order data. Starting next quarter, ASML will only provide annual backlog updates, making the order data in this report particularly important.

2026 Guidance: Focusing on Revenue Growth and Gross Margin Stability

Regarding its 2026 full-year outlook, Morgan Stanley believes the market’s focus is on four aspects:

Revenue Growth Expectation: Analysts expect ASML will give guidance of about 10% growth, a level sufficient to meet market expectations. In recent quarters, any sales growth has been the minimum requirement for investors, and a double-digit growth in Q1 is considered acceptable.

Gross Margin Outlook: Gross margin is expected to be 52.5% in 2026, down only 20 basis points YoY. Although market expectations on margins are unclear, most investors expect it to be flat from last year.

EUV Revenue Growth: Investors expect EUV shipments to increase from around 40 units in 2025 to nearly 50 units in 2026. Since some of the systems are low-priced 3600 models, EUV sales growth may be in the 12–15% range. Morgan Stanley’s model is more optimistic, forecasting shipments exceeding 50 EUV units and about 20% YoY growth in 2026.

DUV Revenue Trend: Divergence exists in expectations for DUV sales to China. The optimists anticipate ASML will eventually raise guidance, but most analysts believe DUV sales won’t “drop sharply” in 2026, which is consistent with last quarter’s guidance. Outside China, consensus is that DUV growth will lag behind EUV.

2027: Breakout Year and Potential Capacity Bottlenecks

Morgan Stanley emphasizes that the market debate focuses on 2027, not 2026. Analysts think the 2026 story is well understood, and investor attention is shifting to 2027.

The bank forecasts 2027 EUV demand could reach 80 low numerical aperture systems, allocated as: TSMC 40 units, Samsung 20 units, Intel foundry/IDM business 6 units. This expectation is based on three main drivers:

1. Large-scale DRAM Catch-up Expansion: After experiencing a super cycle in commodity DRAM and HBM pricing from Q4 2025 to Q3 2026 (covering HBM 3e/4/4e), large-scale capacity expansion is expected from the second half of 2026 into 2027.
2. Strong Logic Chip Demand: Including demand from Intel and Samsung, and earlier-than-expected ramp-up of TSMC’s A14 process capacity.
3. DUV and High-NA Contribution: DUV sales are expected to reach €15 billion, with possible upside if NAND expansion exceeds expectations. Adding €9.9 billion for IBM business and revenue recognition of about 6 high-NA systems (worth €2–3 billion), total revenue for 2027 could reach €48.6 billion, with gross margin around 56%.

Capacity Bottleneck Alert: Possible Supply Tightness in 2027

The report raises a key risk: ASML’s EUV capacity may reach its limit by 2027.

ASML previously said it is working to achieve annual capacity of 90 low-NA EUV machines and around 20 high-NA machines by end-2027, matching current cleanroom space. If 2027 demand truly reaches 80 low-NA units, surplus capacity will be very limited.

There are technical constraints: ASML cannot convert DUV lines to EUV lines as they use different light sources. Theoretically, low-NA and high-NA lines could be interchangeable, but that requires developing a “universal platform”—a long-term plan for 2030 that won’t resolve near-term issues.

To break through the 100+ units annual capacity barrier, ASML must first build new cleanroom space, which requires time and capital investment.

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