Wall Street is collectively bullish: ASML's production capacity surges, the "peak theory" for memory can be put to rest

Author: Wall Street Journal

ASML delivered a second-quarter report that far exceeded expectations and significantly raised its full-year guidance, while also providing a rare capacity expansion roadmap for 2027 to 2028, directly addressing market concerns about the sustainability of AI-driven demand. Major Wall Street investment banks quickly responded, with Goldman Sachs, JPMorgan Chase, Barclays, and others unanimously maintaining or reiterating buy ratings, believing that this performance thoroughly validates the AI supply bottleneck theory and strongly counters the bearish narrative regarding memory prices peaking in 2028.

ASML's second-quarter revenue was €9.3 billion, surpassing Bloomberg's market consensus of €8.9 billion, with a gross margin of 54%, significantly ahead of the guidance range of 51%-52%. The company subsequently raised its full-year revenue guidance for 2026 from €36 billion to €40 billion to €43 billion to €45 billion, with the median approximately 11% higher than market consensus; the full-year gross margin guidance was also raised to 54%-56%. More importantly, management clearly stated that it would expand low numerical aperture EUV and immersion DUV capacity by approximately 30% in 2027 and 2028, which directly triggered a substantial upward revision of market profit expectations for 2028.

After the announcement, ASML's stock price in Amsterdam rose by about 4%, and Nasdaq 100 index futures also increased by about 40 basis points. SK Hynix's shares listed in Seoul surged 8.8% in a single day, recovering from a previous 27% increase in its American Depositary Receipts. Goldman Sachs maintained a buy rating with a 12-month target price of €2,000, implying about 29% upside from the current stock price; JPMorgan Chase similarly maintained an overweight rating with a target price of €1,900.

Performance Exceeds Expectations Across the Board, Third Quarter Guidance Surprises the Market

All core financial metrics for ASML's second quarter exceeded market expectations. According to Goldman Sachs' research report, second-quarter revenue was €9.327 billion, 6% higher than market consensus; EBITDA was €3.456 billion, exceeding consensus by 13%; earnings per share were €7.58, about 11% above consensus. The gross margin of 54% not only far exceeded the upper limit of guidance but was also approximately 230 basis points higher than market consensus.

The third-quarter guidance also significantly exceeded expectations. The company expects third-quarter revenue to be between €11 billion and €12 billion, with the median about 11% higher than market consensus; the gross margin guidance of 55%-57% implies that EBITDA for the third quarter will be approximately 26% higher than market consensus. According to JPMorgan Chase's research report, the median revenue for the third quarter of €11.5 billion is 12% higher than consensus, and the median gross margin of 56% is 350 basis points above consensus.

JPMorgan Chase analyst Sandeep Deshpande pointed out that part of the outperformance was driven by the Installed Base Management (IBM) business, which generated about €300 million more than expected, with software-led productivity upgrades and the continued expansion of the EUV service installed base expected to drive over 30% growth for this business this year, providing additional support for gross margins.

Capacity Expansion Roadmap Exceeds Buy-Side Expectations, 2028 Profit Potential Significantly Reassessed

The most closely watched aspect of this performance was management's clear statement regarding capacity expansion for 2027 to 2028. ASML stated that it would expand its low numerical aperture EUV capacity from about 65 units in 2026 by approximately 30% to about 85 units in 2027, and is studying a further 30% expansion to about 110 units in 2028. Meanwhile, immersion DUV capacity will also increase from about 130 units in 2026 to about 169 units in 2027, and further to about 220 units in 2028.

According to Goldman Sachs' calculations, this capacity plan implies that low numerical aperture EUV shipments will reach 85/110 units in 2027/2028, far exceeding market consensus of 85/89 units; immersion DUV shipments will reach 169/220 units, also significantly surpassing consensus of 137/146 units.

JPMorgan Chase noted that the 2028 capacity guidance has exceeded the bank's previous highest sell-side forecast. According to rough estimates, if the above capacity plan is realized, ASML's earnings per share in 2028 will exceed €65, and combined with the strong momentum of the Installed Base Management business, actual profits could be even higher. Goldman Sachs' trading desk also commented that the target of about 110 units of EUV capacity in 2028 has fallen into the "super optimistic range" (110 to 120 units), far exceeding the sell-side consensus expectation of about 89 units.

Goldman Sachs stated that ASML has essentially locked in most of the EUV orders needed for 2027 and has received a considerable number of orders for 2028, with management describing the order intake situation as "extremely strong."

AI Demand Accelerates, Logic and Memory Expand Along Dual Lines

Management clearly stated that AI-driven demand continues to strengthen in both logic chips and memory, supporting customers in further expanding production at advanced process nodes. In the advanced logic sector, ASML pointed out that customers are simultaneously increasing capacity at the 5/4/3 nanometer nodes to meet AI demand while aggressively pushing for 2-nanometer mass production and beginning preparations for the transition to 1.4-nanometer processes. The company expects advanced logic revenue to grow by about 25% year-on-year in 2026.

In terms of memory, ASML indicated that tight supply of DDR and HBM is driving customers to accelerate investments, and the enhancement of EUV and advanced immersion lithography intensity is further boosting equipment demand. The company expects memory revenue to grow by about 75% year-on-year in 2026.

Goldman Sachs' trading desk commented that as the memory market transitions to advanced 1c/1d nanometer nodes required for HBM4/HBM5 and traditional server DRAM, memory manufacturing is undergoing a fundamental paradigm shift. The number of EUV layers in 1c DRAM has increased to over five layers, while 1d and 0a generations are planned to fully adopt EUV technology across all layers. Deep ultraviolet multiple patterning processes have reached physical limits, making ASML a major beneficiary of this structural transformation.

Goldman Sachs further pointed out that the wafer strength required for HBM is far higher than that for traditional DRAM, and this dual expansion is severely squeezing global wafer fab capacity, keeping memory prices elevated for a longer period. Given the structural complexities of transitioning to advanced nodes, bearish arguments predicting that memory prices will peak before 2028 or that supply gaps will significantly ease "seem premature."

Wall Street's Collective Endorsement, Divergence Only on Whether 2027 Guidance is Aggressive Enough

Several major investment banks quickly issued positive evaluations after the earnings release, but there were slight differences in interpreting the 2027 EUV capacity guidance.

Barclays analyst Simon Coles stated that ASML provided most of what investors were expecting, and the guidance for low numerical aperture EUV capacity in 2027 and 2028 should reduce market disputes about whether the company is supply constrained, noting that the order amount for low numerical aperture EUV in the first half of the year could reach €22 billion, hitting a historical record level.

JPMorgan Chase's Sandeep Deshpande believes that although the company did not reach 90 units of EUV capacity in 2027, "we think this is not significant," as the guidance for EUV and DUV capacity in 2028 far exceeds expectations, and the revenue growth rate of about 35% in 2026 has surpassed current market expectations for the overall growth rate of the wafer fab equipment industry, indicating that the company is effectively guiding about 30% growth over the next two years.

Morgan Stanley analyst Lee Simpson pointed out that although the company no longer discloses order data, management stated that order intake in the first half of the year remained "very strong," and customers are seeking to accelerate capacity expansion, indicating strong sales momentum for 2027.

Jefferies analyst Janardan Menon took a relatively cautious stance, believing that the company's outlook comments are mixed, with the strong growth in sales and gross margin of the Installed Base Management business being particularly positive, but the 2027 EUV guidance is below the recently significantly rising market expectations.

Oddo BHF expects market consensus profit forecasts to be revised upward by about 20%, stating that "ASML remains an unmatched story of technological dominance, now benefiting from a fundamentally different cycle driven by AI."