Is ASML a Buy?

Key Points

• ASML got some positive coverage after it took a stake in AI start-up Mistral AI.

• Despite strong growth in AI, analysts expect weak growth at ASML in the coming quarters.

• The stock should eventually capitalize if the AI boom continues.

• 10 stocks we like better than ASML ›

AI stocks are soaring after Oracle and others posted record levels of investment, and most sector stocks are now trading near all-time highs.

However, one big name is getting left behind. That's ASML (NASDAQ: ASML), the world's only maker of extreme ultraviolet (EUV) lithography machines, which are used to make the most advanced semiconductors. ASML plays a crucial role in the global semiconductor supply chain, serving foundries like TSMC with its mammoth machines that cost tens of millions of dollars.

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While ASML stock is up 17% year to date, it's still down significantly from its all-time high, off 26% from its peak in July 2024, showing that the company hasn't lived up to earlier expectations.

ASML was in the news last week after it invested in Mistral AI, following in the footsteps of tech titans like Nvidia that have invested in smaller AI companies. ASML is investing 1.3 billion euros in the European AI start-up in a Series C funding round. As part of the deal, they formed a collaboration agreement around the use of AI models across ASML's product portfolio and to team up on research and development to benefit ASML customers.

Investors seemed to like the deal as the stock moved higher last week. Is it a sign of things to come? Let's take a closer look at where ASML stands today to see if it's a buy.

Image source: Getty Images.

Can ASML bounce back?

ASML's deal with Mistral seemed to breathe some new life into the stock as Arete upgraded it to a buy, and Bank of America said that the Mistral investment could expand the stock's multiple. In recent quarters, ASML has struggled with volatile demand for its machines, including in China, though it has touted strong demand related to AI. Unlike chip designers like Nvidia or even manufacturers like TSMC, ASML is exposed to a different product cycle as a semiconductor equipment manufacturer.

In the second quarter, the company saw strong growth with revenue rising 23% to 7.69 billion euros and net income up 45% to 2.3 billion euros. Bookings in the quarter were flat at 5.5 billion euros.

For the full year, management expects revenue growth to slow, calling for 15% revenue growth for 2025. For 2030, the company continues to target 44 billion to 60 billion euros, or 52 billion at the midpoint, up from 28.3 billion in 2024. That implies a compound annual growth rate of just around 11% at the midpoint.

ASML has a competitive advantage in the industry based on technology, but the demand cycle is outside of its control. The long-term guidance is subject to change, and ASML said, "Looking at 2026, we see that our AI customers' fundamentals remain strong. At the same time, we continue to see increasing uncertainty driven by macroeconomic and geopolitical developments."

Is ASML a buy?

The Mistral AI deal is a smart move as it gives ASML some direct exposure to a promising AI start-up and leverages its market power into a new revenue stream. The tailwinds from AI are encouraging as well, but near-term expectations are muted as analysts expect essentially flat growth for the second half of the year and just 4% in 2026.

Following the stock's recent rebound, ASML shares trade at a forward price-to-earnings ratio of around 30 based on current estimates.

That's pricey for a stock with single-digit revenue growth, but ASML has enough of a competitive advantage to make holding the stock worthwhile.

At this point, getting a small position in ASML makes sense as estimates are low enough over the coming quarters that the company could top expectations, sending the stock higher. Looking out further, if the AI boom continues, ASML will eventually be a winner even if it got off to a slow start.

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Bank of America is an advertising partner of Motley Fool Money. Jeremy Bowman has positions in ASML, Bank of America, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends ASML, Nvidia, Oracle, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.