Is ASML Stock a Buy After It Raises Its Outlook on AI Demand?

Semiconductor equipment company ASML (NASDAQ: ASML) was the first artificial intelligence (AI) company to report Q1 earnings last week, and it delivered by topping estimates and raising its full-year revenue outlook. However, with the stock having started the year on fire, its shares nonetheless fell. The stock is still up more than 36% year to date, as of this writing.

Strong outlook for ASML in 2026

The semiconductor equipment industry is notoriously lumpy, but ASML plays one of the most important roles in the semiconductor value chain, as it is the only company with extreme ultraviolet (EUV) lithography technology. These machines are needed by foundries to make advanced logic chips, such as graphics processing units (GPUs), and also for high-bandwidth memory (HBM).

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It said it plans to have at least 60 low-NA EUV systems available this year and 80 next year if the demand is there. However, some investors were hoping it would be able to deliver 90 next year. These machines can cost more than $300 million apiece, so 10 machines aren't a small revenue amount.

For the quarter, its revenue climbed 13% year over year to 8.8 billion euros ($10.4 billion) and came in toward the high end of the company's guidance range of 8.2 billion to 8.9 billion euros ($9.7 billion to $10.5 billion). Its equipment sales increased 7% year over year to 6.3 billion euros ($7.4 billion), while its service revenue surged 25% to 2.5 billion euros ($2.9 billion).

During the quarter, the company sold 67 new lithography systems and 12 used systems compared to 66 new and four used systems a year earlier. Approximately 66% of its sales came from higher-priced EUV technology versus 46% a year ago, while 19% of its sales were to China, versus 49% a year ago.

Looking ahead, the company forecast Q2 revenue to be between 8.4 billion euros ($9.9 billion) and 9 billion euros ($10.6 billion) and 2026 revenue of between 36 billion euros ($42.4 billion) and 40 billion euros ($47.1 billion), up from a prior outlook of 34 billion euros ($40 billion) and 39 billion euros ($45.9 billion).

Is ASML stock a buy?

Trading at a nearly 40 times forward P/E, ASML stock may be a little ahead of itself. However, its importance in the semiconductor industry is unmatched, given its monopoly on the technology needed to make advanced logic chips and memory. Both markets are booming, with demand outpacing supply, indicating a need for more of its EUV machines.

I wouldn't be chasing the stock at these valuation levels, but it would certainly be one I'd want to scoop up on any material decline.

Geoffrey Seiler 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.