Wall Street on ASML's earnings report: Q2 guidance "minor flaws do not overshadow the overall excellence," demand momentum for advanced processes and memory chips remains strong.

Wall Street on ASML's earnings report: Q2 guidance "minor flaws do not overshadow the overall excellence," demand momentum for advanced processes and memory chips remains strong.

ASML's overall performance in Q1 exceeded market expectations. Although Q2 revenue guidance was slightly below market expectations, management simultaneously raised the full-year guidance and announced an expansion of EUV capacity to meet strong demand in 2027, leading mainstream Wall Street institutions to generally maintain a bullish stance.

According to Chasing Wind Trading Desk, the core view of Citi and Morgan Stanley is: Management publicly committed to delivering at least 80 low numerical aperture EUV machines by the end of 2027, more than 20 months in advance. This number is significantly higher than the market consensus of 72 machines and implies incremental revenue of at least €2 billion—over 4% above current consensus. Given the early commitment, analysts believe this number is itself conservative.

The softer Q2 guidance is a distraction, but not the main story. Management set Q2 revenue guidance at €8.7 billion, below market consensus of €8.94 billion. The gross margin guidance of 51-52% is also slightly below the consensus expectation of 52.3%. But the real logic to focus on is that demand has already surpassed supply, while supply-side decisions for expansion have just been made.

Comprehensive Q1 Outperformance: Gross Margin and EPS Both Impressive

ASML's Q1 revenue reached €8.77 billion, slightly higher than market consensus (Citi forecast: €8.7 billion; Visible Alpha consensus: €8.69 billion), and at the upper end of the company's own guidance range of €8.2–8.9 billion.

Gross margin performance was particularly outstanding at 53.0%, surpassing Citi’s prediction of 52.3% and the consensus of 52.2%, also sitting at the upper end of the company’s guidance, mainly benefiting from higher profit contributions from Installed Base Management.

Operating margin was 36.0%, about 120 basis points above market consensus of 34.8%. Although SG&A and R&D expenses were slightly above expectations, overall profitability remained strong. EPS was €7.15, about 7% above market consensus of €6.70, mainly due to higher EBIT.

Q2 Guidance Below Expectations: Short-term Disturbance, Strong Momentum Unchanged

ASML’s Q2 revenue guidance is about €8.7 billion, about 3% lower than market consensus of €8.94 billion. Gross margin guidance is 51–52%, the midpoint is about 78 basis points below market consensus of 52.3%. Combined operating expenses guidance (R&D about €1.2 billion, SG&A about €0.3 billion), Morgan Stanley estimates Q2 operating profit at about €2.98 billion, with an operating margin of about 34.4%, below consensus of 34.9%.

Nevertheless, management emphasized the continued acceleration in demand for advanced logic process (migration to 2nm) and memory (DDR5 and HBM). Installed base revenue is expected to reach €2.5 billion, meaning demand momentum remains strong.

Full-Year 2026 Guidance Raised: Non-EUV Demand Unexpectedly Strong is the Main Driver

Management raised full-year 2026 revenue guidance to about €38 billion (guidance range €36–40 billion), with the midpoint significantly higher than the prior consensus of about €36.5 billion.

The main upward driver is customers accelerating capacity expansion, especially demand for immersion lithography machines (Immersion, i.e., non-EUV) greatly exceeding expectations. Management stated that EUV demand was already within expectations, but the strength of demand for immersion lithography was beyond forecasts.

Notably, the revised full-year guidance has taken into account the potential outcome of export control discussions, but management did not provide further specifics. In addition, sales in China fell 56% quarter-on-quarter and 23% year-on-year, in line with the company’s prior prediction of weakening sales in the region.

2027 Capacity Expansion: At Least 80 EUV Machines, Strong Upside Clearly Visible

The most forward-looking information in this earnings report is capacity expansion.

ASML management clearly stated that 2026 Low NA EUV capacity will be increased to at least 60 machines (Visible Alpha consensus: 59 machines), and the 2027 capacity target is set at at least 80 machines, while market consensus is only 72 machines.

Citi Research emphasized: Management made a clear commitment in April 2026 for delivery volumes more than 20 months into the future for full-year 2027, and this likely already includes certain conservative assumptions. If 80 Low NA EUV machines are delivered in 2027, there will be an incremental revenue uplift of about €2 billion, over 4% higher than current market consensus.

Morgan Stanley also believes that the company’s comments about demand exceeding supply and customer capacity expansion plans accelerating provide strong evidence of robust sales momentum in 2027, and expects consensus estimates for 2026/2027 revenue to be raised by mid-single-digit percentages.

Citi and Morgan Stanley Both Maintain Bullish Ratings

Citi Research maintains a "Buy" rating on ASML with a target price of €1,600 (current price €1,284.20, implying about 24.6% upside, total return including dividends about 25.1%). Citi believes ASML has strong execution, a clear capacity expansion path, clear upside for 2027 performance, and predicts EPS will achieve a high-teen compound annual growth rate (CAGR) before 2030. For valuation, Citi uses a 38x 2027 P/E or 1.7x PEG.

Morgan Stanley maintains an "Overweight" rating, target price €1,400, and lists ASML as "Top Pick". Morgan Stanley values ASML at 31x P/E and believes this report reinforces its investment logic, with the impact on performance assessed as "slightly positive, slightly revised upward".

 

 

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The above highlights were contributed by Chasing Wind Trading Desk.

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