Is ASML Holding NV's Stock a Buy Ahead of Its Q3 Earnings Report Wednesday?

ASML (NASDAQ:ASML) doesn't get as much attention as chip stocks like Nvidia do, but the European semiconductor capital equipment specialist is arguably just as crucial to the AI boom.

ASML is the world's only manufacturer of extreme ultraviolet (EUV) lithography equipment, which is used by manufacturers like Taiwan Semiconductor Manufacturing, Intel, and Samsung to make the world's most advanced chips.

The company is downstream from fabless chip companies like Nvidia in the AI boom, but it's set to reap the rewards of surging demand for AI chips, including the memory chip shortage and the supply expansion now underway.

With ASML set to report third-quarter earnings on Wednesday, let's review what to expect from the company to determine if the stock is a buy.

Image source: Image source: The Motley Fool.

Can ASML keep climbing?

ASML stock is up 64% this year, benefiting from the larger boom in chip stocks in the spring, though it's traded sideways over the last few months.

Investors bid the stock up on expectations that its growth will accelerate due to semiconductor supply shortages, and that seems to be happening.

The analyst consensus calls for ASML's revenue to jump 56% to 11.7 billion euros, or $13.1 billion, and for adjusted earnings per share to nearly double from 5.49 euros to 10.76 euros. ASML's quarterly results are lumpy as its machines are very expensive and it sells around 100 of them each quarter. However, it also earns significant revenue from installed base management, which covers maintenance, repair, and upgrades to existing machines.

The forecast calls for ASML's strongest revenue growth since 2023, and significantly higher than the 24% growth it reported in the second quarter. The boom in memory explains part of the growth surge as the company has projected more than 75% growth in memory systems for the year, due to ramping demand for high bandwidth memory (HBM) chips, and top customers like TSMC and Intel are expanding production of more advanced nodes.

Is ASML a buy heading into earnings?

With the stock having roughly doubled over the last year, ASML can't be considered cheap anymore. It currently trades at a price-to-earnings ratio of 57, which is higher than many of its chip-stock peers, such as Nvidia, as well as ETFs that track the industry, such as the Van Eck Semiconductor ETF.

However, ASML is a rare monopoly, as the only maker of EUV machines, that investors have access to, and its market power grows as demand for more advanced chips leads manufacturers to buy more EUV machines. The company also has a less advanced deep ultraviolet (DUV) machine, with which it competes with Chinese companies and others such as Nikon and Canon. While others are developing EUV technology, the company's lead in the industry seems reasonably secure due to its experience, specialized supply chain, technical expertise, and relationships.

Finally, investors will want to watch ASML's guidance in the report. The company has issued 2030 revenue guidance of 44 billion-60 billion euros, but analysts' expectations for the third quarter show it's already reached that rate, meaning it could soon raise its long-term guidance. The company has already raised its 2026 guidance to 43 billion-45 billion euros from an earlier forecast of 36 billion-40 billion euros.

Based on the momentum in the business, the monopoly in EUVs, and the growth in chip demand from AI, ASML looks like a strong buy ahead of its report. Though its quarterly results are difficult to predict, the company should achieve considerable growth over the next few years.

Jeremy Bowman has positions in ASML, Nvidia, Taiwan Semiconductor Manufacturing, and VanEck ETF Trust - VanEck Semiconductor ETF. The Motley Fool has positions in and recommends ASML, Intel, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.