ASML Has More Work to Do on AI

Here's our initial take on ASML Holding's (NASDAQ: ASML) third-quarter financial report.

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Is ASML Taking Full Advantage of AI?

ASML Holding's third-quarter results didn't exactly reflect the views that many investors have about companies involved in the rise of artificial intelligence. The maker of lithography equipment for producing semiconductors reported only a modest year-over-year increase in revenue, falling short of what most investors had wanted to see. Earnings growth of 4% was a little better, but both revenue and earnings were lower than they had been in the first and second quarters. Unit sales of lithography systems also remained at lower run rates than prevailed during the year-ago period. Gross margin of 51.6% was up from the year-ago quarter but down from earlier this year.

Nevertheless, CEO Christophe Fouquet largely focused on the positive aspects of ASML's business. He lauded the launch of its first advanced packaging product as an important move forward in 3D integration, and he pointed to the ongoing benefits from the company's partnership with Mistral AI to integrate more useful features into its equipment to boost productivity.

Fouquet also set expectations for 15% sales growth for the full 2025 year. However, most of that growth came early in 2025. ASML's projections for the fourth quarter suggest quarterly revenue will come in between down 1% and up 6% compared to the same period last year. Moreover, the CEO pointed out that demand from China will "decline significantly" compared to 2024 and 2025.

Immediate Market Reaction

ASML shares were up more than 5% early in the regular morning trading session on Wednesday after the announcement. Even with somewhat sluggish backward-looking figures for the quarter, shareholders kept their attention squarely on ASML's future. Solid order bookings and positive views about the company's 2026 forecast were apparently enough to prompt the push back upward. As a result, ASML's share price could challenge all-time record highs.

ASML stock spent much of 2025 in a fairly tight range as sentiment over the chipmaking equipment manufacturer swung. Concerns about global trade play a role for the Dutch company as well, and new tariff tension could raise new questions for ASML, particularly in regard to its business with China.

What to Watch

The big question is whether ASML can reach its ambitious longer-term targets. The company still expects 2030 revenue to come in between 44 billion and 60 billion euros, and it hopes to get gross margin levels up to as much as 60%.

Yet investors might not really be satisfied with that growth rate. Based on fourth-quarter projections, ASML anticipates total sales for 2025 of between 32.1 billion and 32.7 billion euros. That implies average annual growth of between 6% and 13% over the next five years. And ASML's statement that it "does not expect 2026 total net sales to be below 2025" didn't exactly inspire immediate confidence either.

For a hardware company, a growth rate of 13% from already significant levels would be fairly impressive in most market environments. However, AI investors largely expect companies to show faster growth. With an earnings multiple of roughly 35, ASML isn't quite as richly valued as some of its higher-growth AI peers, but the price still likely reflects greater excitement about ASML's AI future than the company is currently signaling.

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Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML. The Motley Fool has a disclosure policy.