Shares of ASML Holding (ASML 1.18%) rallied after the company's fourth-quarter earnings report showed soaring orders for the company's devices that make semiconductors. The stock has been up and down over the past year, as it has been pressured over Chinese trade restrictions and, more recently, over what impact DeepSeek could have on chip demand.

Meanwhile, ASML has introduced a new technology called a high numerical aperture extreme ultraviolet lithography system, or High NA EUV, that it is trying to sell to its largest customers. All in all, the the stock is down about 15% during the past 12 months. With orders on the rise, let's dig into ASML's earnings to see if this is a good time to buy the stock.

Orders surge

ASML had long discussed 2024 being a transition year ahead of what would be a better 2025, and signs of that playing out were on display when the company reported a huge jump in orders, as reflected in its booking number. It recorded bookings of 7.1 billion euros ($7.4 billion), which was a 169% increase compared to Q3 and well ahead of the 4 billion euros ($4.2 billion) that analysts had expected, as compiled by Visible Alpha. It noted that 3 billion euros ($3.1 billion) of its backlog was for EUV (extreme ultraviolet lithography) equipment.

For 2025, the company expects to generate revenue of 30 billion to 35 billion euros ($31.1 billion to $36.3 billion), with a Q1 revenue of 7.5 billion to 8 billion euros ($7.8 billion to $8.3 billion). Gross margins are expected to be between 51% to 53% for the year and between 52% to 53% for the first quarter.

The company said that if AI chip demand remains strong and more manufacturing capacity is built to help meet that demand, revenue could be toward the upper end of that range. However, there are certainly geopolitical concerns that could take 2025 revenue to the lower end of the range.

After two years of outsized contributions from China, the company expects its Chinese business to return to more normal levels in 2025. China accounted for 41% of its revenue in 2024 and 29% in 2023, respectively, as Chinese companies rushed to get orders out of fear there would be additional trade restrictions.  These are not sales of its EUV equipment, which it has been barred from selling into China. China represented 14% of its sales in 2022 and 16% in 2021.

Further out, ASML continues to see the opportunity for 2030 revenue of between 44 billion to 60 billion euros ($45.7 billion to $62.3 billion), with gross margins improving to between 56% to 60%. It sees this being driven by strong overall chip demand as well as strong AI demand creating a shift more toward advanced chips that need EUV technology.

As for the quarter itself, ASML's revenue jumped 29% year over year to 9.3 billion euros ($9.7 billion) and came above the company's guidance range of 8.8 billion to 9.2 billion euros ($9.1 billion to $9.6 billion). Its equipment sales rose nearly 25% year over year to 7.1 billion euros ($7.4 billion), while its service revenue surged 39% to 2.2 billion euros ($2.3 billion).

ASML sold 119 new lithography systems and 13 used systems in Q4 compared to 113 new and 11 used systems a year ago. In Q3, it sold 106 new lithography systems and 10 used systems. It recognized revenue from two of its new high NA EUV machines in the quarter, as customer accepted the orders and it finished installing one system.

Image source: Getty Images.

Is ASML stock a buy?

While its results can be a bit lumpy as a semiconductor equipment manufacturer selling very expensive machines, ASML is well-positioned over the long term with a virtual monopoly in the EUV technology needed to make advanced chips used for AI and other applications. As long as AI chip demand continues to expand, the company should continue to sell more of its EUV machines.

Meanwhile, its new high NA EUV technology has the opportunity to be a big growth driver in the coming years. While leading chip manufacturer Taiwan Semiconductor Manufacturing has balked at the price, it has also been an early adopter of ASML's EUV technology, which has helped get it to where it is today . I don't think the company will want to risk potentially falling behind technologically, especially with Intel looking to embrace the technology. As such, I think this could be more a negotiating ploy at this point.

From a valuation standpoint, ASML trades at a forward price-to-earnings multiple of about 30 based on 2025 estimates. Given its monopoly on the EUV machines needed to make high-end semiconductors, I think that is a fair valuation.

ASML PE Ratio (Forward) data by YCharts

While I would expect the stock to be volatile given the lumpy nature of its business, I think ASML should be a solid long-term winner given its integral part in the semiconductor value chain.