ASML Holding N.V. ASML has been on an upward trajectory in 2025, gaining 8.5% year to date despite broader market volatility. The stock has outperformed both the Zacks Computer and Technology sector and the S&P 500 index, reflecting strong investor confidence. It has also outshined semiconductor heavyweights like NVIDIA NVDA, Broadcom AVGO and Marvell Technology MRVL.

YTD Price Return Performance

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While ASML’s leadership in semiconductor manufacturing equipment remains unchallenged, near-term risks such as export restrictions and premium valuation suggest that holding the stock is the best strategy for now.

ASML’s Strong Technology Leadership

ASML’s dominance in the semiconductor manufacturing sector is unchallenged. The company holds a near-monopoly on extreme ultraviolet (EUV) lithography, the cutting-edge technology that is essential for producing the most advanced chips.

This technology enables the semiconductor industry to continue progressing to smaller, more powerful nodes, such as 3nm and below. Although the high cost of EUV machines limits the pool of customers, ASML’s leadership ensures that it remains the go-to provider for major semiconductor manufacturers, including Taiwan Semiconductor Manufacturing Company, aka TSMC, Samsung and Intel.

ASML’s investment in next-generation technologies, such as High-NA EUV, signals that the company is preparing for the future. High-NA EUV systems, designed for even smaller nodes, are expected to be essential for the semiconductor industry’s continued evolution.

While the adoption of the high-NA EUV technology has been slower than anticipated, the long-term growth potential remains significant. ASML is positioning itself as a key enabler of the semiconductor industry’s future, which supports a favorable investment thesis for those with a long-term view.

ASML’s Solid Financials Despite Market Volatility

ASML’s recently reported financial results for the fourth quarter of 2024 showcased remarkable growth, with net sales climbing 24% year over year to €9.26 billion and net income rising approximately 30% to €2.69 billion. Earnings per share also grew 30% to €6.85, reflecting solid operational efficiency.

The gross margin expanded 90 basis points year over year to 51.7%, reflecting strong cost management and improved efficiency in its advanced lithography systems.

ASML’s guidance for the first quarter and full-year 2025 indicates continued growth momentum in the near term. The midpoint of the revenue guidance for the first quarter and full-year signifies year-over-year growth of 46.5% and 15%, respectively. The midpoint of the gross margin forecast indicates an improvement of 150 basis points for the first quarter and 70 basis points for 2025.

Order Backlog Remains a Key Strength for ASML

A major strength for ASML is its record backlog of €36 billion, which provides strong visibility into future revenues. In the fourth quarter of 2025, the company booked €7.1 billion in new orders, including €3 billion from EUV machines and €4.1 billion from deep ultraviolet (DUV) sales.

While semiconductor capital expenditures have softened, AI-driven demand for high-performance computing (HPC) chips, high-bandwidth memory (HBM) and advanced data center processors continues to fuel interest in ASML’s lithography tools. As chipmakers expand their 2nm and sub-2nm production capabilities, ASML’s next-generation EUV systems will remain critical, securing long-term revenue streams.

Near-Term Challenges Persist for ASML

One of ASML’s most pressing challenges is increasing geopolitical risk, particularly export restrictions on semiconductor equipment to China. The Dutch government, under U.S. pressure, has imposed strict limits on ASML’s ability to sell its most advanced lithography tools to Chinese customers, impacting potential revenue growth from one of its largest markets.

China accounted for about 41% of ASML’s lithography shipments in 2024, meaning any additional trade restrictions could further reduce sales opportunities. With U.S.-China tensions escalating, the risk of retaliatory measures affecting ASML’s supply chain or customer relationships cannot be ignored. Although ASML remains resilient and diversified across global markets, these geopolitical uncertainties could lead to short-term stock price volatility.

Image Source: ASML Holding N.V.

Meanwhile, macroeconomic challenges such as inflation, a sluggish recovery in mobile and PC markets, and delays in the memory segment’s rebound compound ASML’s woes. These factors highlight the cyclical nature of the semiconductor industry, which is still contending with post-pandemic demand volatility.

ASML Premium Valuation: A Reason for Concern

ASML stock currently trades at a premium to the Zacks Computer and Technology sector. Its forward 12-month price-to-earnings (P/E) ratio of 29.22 exceeds the sector’s average of 26.19. While this premium reflects ASML’s technological edge and market leadership, it also limits the stock’s immediate upside potential.

Forward 12-Month P/E Ratio

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Conclusion: Hold ASML Stock for Now

ASML’s technological leadership, strong financials and robust backlog make it a high-quality long-term investment. However, geopolitical risks, a slower investment cycle and a premium valuation suggest that immediate upside is limited. Investors should hold ASML stock for now, watching for potential pullbacks or signs of accelerating demand before increasing exposure.

Currently, ASML carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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NVIDIA Corporation (NVDA) : Free Stock Analysis Report

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