The artificial intelligence (AI) ecosystem was rocked recently by news that Chinese start-up DeepSeek had developed a cost-effective and competent large language model on the cheap. That revelation called into question the tens of billions of dollars that are being poured into the buildout of AI infrastructure, but it looks like the robust spending environment in the tech sector is here to stay.

Even after the DeepSeek news, the CEOs of both Meta Platforms and Microsoft asserted that heavy capital expenses would still be necessary to meet the computing power requirements for the forecast increase in demand for AI applications. Moreover, DeepSeek's ability to build an AI model with a significantly lower investment is expected to spur the demand for AI, based on an economic concept called Jevons Paradox.

The management team at ASML Holding (ASML 1.53%) holds a similar view. In an interview with CNBC discussing the Dutch company's fourth-quarter results (which it released on Jan. 29), CEO Christophe Fouquet remarked that a low-cost AI model could drive demand for AI applications, which in turn would increase the need for processing power to support them.

Fouquet added that he doesn't see a slowdown in chip demand following DeepSeek's breakthrough, and demand for its chipmaking equipment was solid in Q4. All this was enough to send shares of ASML up by more than 3% following its earnings report. Here's why this semiconductor sector bellwether seems worth buying right now.

ASML's bookings shattered Wall Street's expectations

ASML sells lithography equipment that's used by chipmakers in their foundries. So, the health of the semiconductor industry and the state of chip demand tend to dictate ASML's financial performance.

However, the stock has been underperforming over the past couple of years. ASML is up by just 9% in the last two years as compared to the 63% gains registered by the PHLX Semiconductor Sector index over the same period. That below-par performance can be attributed to weaknesses in certain pockets of the semiconductor market, which counterbalanced the sharp growth in demand for high-end AI chips.

However, ASML's latest results suggest that a better year is in the cards in 2025. The company recorded new bookings worth 7.1 billion euros in Q4, an increase of almost 170% from the third quarter. Analysts were expecting just 3.5 billion euros worth of new bookings in Q4. ASML smashed that target thanks to the robust demand for its extreme ultraviolet lithography (EUV) machines.

EUV machines are used to print the most advanced chips, such as the ones that are best suited to handle AI workloads. ASML received 3 billion euros worth of orders for these machines during the quarter, suggesting that demand for AI chips will remain healthy. As a result, ASML entered 2025 with a solid order backlog of 36 billion euros.

Management is confident that it will be able to hit the higher end of its 2025 revenue forecast range of 30 billion euros to 35 billion euros if "AI demand continues to be strong and customers are successful in bringing on additional capacity online to support that demand." The higher end of the guidance range would equate to a jump of 24% in revenue.

Additionally, the company expects its gross margin to land between 51% and 53% this year, which at the midpoint would be a slight improvement over its 2024 gross margin. This could set ASML up for better bottom-line performance in 2025 following a slight dip in its earnings per share last year.

An improved bottom line could lead to a nice jump in the stock price

Analysts' consensus estimate is for a 24% increase in ASML's earnings in 2025 to 23.92 euros per share. That would translate into $24.50 at the current exchange rate. Assuming ASML indeed hits that mark and trades at 33.4 times earnings at that time (in line with the tech-laden Nasdaq-100 index's earnings multiple), its stock price would rise by 11% to $819 in the next 12 months.

However, stronger gains cannot be ruled out if the company clocks stronger earnings growth and the market decides to reward the stock with an even higher multiple. Given that ASML is trading at 29 times forward earnings right now, investors can get a good deal on a semiconductor stock with the potential to deliver healthy gains.