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SUMMARY
Parkev Tatevosian, CFA, examines ASML's recent stock performance, competitive positioning, and financial metrics within the semiconductor industry. He concludes that while ASML demonstrates robust growth and profitability, its current valuation does not present an attractive buying opportunity.
MAIN POINTS
- ASML stock has surged 60% year-to-date in 2026, driven by a rally in semiconductor stocks.
- ASML holds a near-monopoly in semiconductor equipment and is considered technologically ahead of competitors.
- Despite a revenue dip in 2024, ASML's revenue rebounded strongly in 2025, with Wall Street projecting continued growth.
- Profit margins and operating cash flow ratios have significantly improved, but valuation metrics like forward P/E and price to operating cash flow are high.
- A discounted cash flow analysis estimates ASML's intrinsic value at $1,109 per share, well below its current market price.
- The analyst advises waiting for a better entry price due to concerns about overvaluation despite ASML's strong fundamentals.
DETAILED ANALYSIS
ASML has experienced a substantial rally in 2026, with its stock price increasing by 60% year-to-date, reflecting broader enthusiasm for semiconductor stocks. The company is a critical supplier of advanced equipment to major semiconductor manufacturers such as Taiwan Semiconductor, Intel, and Micron, underpinning its near-monopoly status in the industry. This dominant market position is attributed to ASML's technological leadership, which places it at least one or two steps ahead of competitors, making it difficult for others to catch up in the foreseeable future.
Financially, ASML reported a temporary revenue decline in 2024, dropping to $29.3 billion from $30.4 billion, but quickly rebounded to $38.4 billion in 2025. Analyst projections indicate robust future growth, with revenues expected to reach $45 billion in 2026, $55 billion in 2027, and $60 billion by 2028. The company's profitability is notable, with operating profit margins rising to 36.9% in the latest trailing 12 months, up from 23% in 2019, and operating cash flow to sales increasing to 42.3% from a 2017 low of 20.3%.
These improvements suggest that ASML's margins could continue expanding if revenue growth persists.
However, valuation remains a key concern. ASML trades at a forward price-to-earnings ratio of 41 and a forward price to operating cash flow above 45, both considered elevated even for a company with strong growth and profitability. A discounted cash flow analysis, using a weighted average cost of capital of 11.7% and a terminal growth rate of 5%, yields an intrinsic value of $1,109 per share, significantly below the current market price of $1,705.
This discrepancy, coupled with the stock trading near its 52-week high and heightened investor sentiment, leads to the conclusion that ASML, while fundamentally strong, is not attractively valued at present. The recommendation is to wait for a more favorable entry point before considering investment.
LINKS
- YouTube channel membership for early access, spreadsheets, and Discord community.
- Special offer for The Motley Fool Stock Advisor.
- Parkev Tatevosian's book on stock investing frameworks.
- Fiscal.ai investment research platform with viewer discount.
- Webull investing platform with bonus shares offer.
- Free monthly newsletter via Substack.