The most important machine in the AI boom isn’t a chip. It’s the tool that prints them, and only one company makes the most advanced version. That company is ASML Holding (NASDAQ:ASML), the Dutch maker of lithography systems. These room-sized machines use light to etch circuit patterns onto silicon wafers, and chances are you’ve never seen one. Foundries and memory makers buy them, and ASML then earns a second stream of revenue servicing and upgrading that fleet for years.
Demand is strong enough that management plans to add about 30% to its low-NA EUV capacity in 2027, on top of roughly 65 units this year. As investors weigh valuations across the 12 Best Performing Semiconductor Stocks to Invest In, the harder question is whether a stock priced above both its sector and its own history leaves any room for error. The answer hinges on how durable that AI-driven spending proves to be.
The machine nobody else sells
ASML describes its extreme ultraviolet (EUV) lithography as unique to the company, offering the highest resolution in high-volume manufacturing. For anyone building leading-edge chips, there’s simply no second supplier to call.
The edge runs deeper than the flagship tool. ASML says nearly every lithography system it has shipped is still running at a customer fab, supported by around 10,000 customer support staff. That fleet pays: installed base management sales (service and upgrades) reached €2,762 million in the second quarter of 2026, up from €2,488 million in the first. Recurring service revenue is a model other chip-equipment makers like Applied Materials rely on too, though none of them can offer EUV.
Margins climbing with volume
The second quarter of 2026 showed what pricing power looks like on paper. Total net sales rose to €9,326 million from €8,767 million in the first quarter. Gross margin improved to 54% from 53%, and net income reached €2.9 billion.
New lithography system shipments jumped to 86 units from 67. CEO Christophe Fouquet linked the strength to ongoing AI investment, saying customers keep accelerating their capacity plans and order intake was extremely strong in the first half. That same wave of spending has also lifted AI chip designers such as Nvidia.
The outlook moved up as well. ASML raised its full-year 2026 guidance to €43 billion to €45 billion in sales at a 54% to 56% gross margin, and guided third-quarter sales of €11 billion to €12 billion at 55% to 57%. Higher margin targets alongside higher volume suggest the moat is widening, not merely holding. The company also bought back about €1.1 billion of stock in the second quarter.
What if the AI wave crests?
Lithography is a cyclical business. ASML’s growth rests on a small group of chipmakers continuing to pour money into new fabs, and those budgets can be cut fast when chip demand cools. If AI investment slows, ASML’s orders would likely feel it early.
Visibility is also thinner than the headlines suggest. The latest results release describes order intake in qualitative terms rather than disclosing a bookings figure, so investors are leaning on management’s description of demand. Cash and short-term investments also slipped to €7,582 million from €8,376 million over the quarter.
The counterweight is that ASML is expanding on the back of customer commitments, and it’s already investigating another 30% of EUV capacity for 2028. Companies bracing for a downturn rarely map out two years of expansion. The risk is real, but it looks more like a timing risk than a threat to the franchise.
A premium on a premium
At 41.45 times forward earnings, ASML trades far above the sector average of 23.35 and above its own 5-year average of 37.05. Investors are paying up for a dominant business, and then a bit more on top.
Growth is what makes that bearable. Earnings per share are expected to grow 35.57% in 2027, and the raised guidance plus concrete 2027 capacity plans give that estimate something solid to stand on. Against that pace, the multiple looks less stretched than it does at first glance. Even so, a stock trading above its historical range has less cushion if execution falters, a risk investors must also weigh across the 10 Best AI Stocks to Buy Before They Explode.
Hedge fund interest ticked up, with 79 funds holding the stock in the most recent quarter, up from 75 in the prior one. Short interest sits at just 0.38% of the float, pointing to relatively limited bearish positioning.
Paying for durability
ASML’s moat looks as strong as ever, and rising margins on rising volume suggest it’s widening as AI demand builds. The valuation already prices in much of that, so the setup suits long-term investors comfortable riding out cyclical swings more than anyone hunting for a bargain. If you own it, the signal to watch is the 2027 capacity plan: any sign customers are trimming it would change the picture quickly.
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