ASML: Q1 2025 Results - Tariff fears, Technology Roadmap & Valuation Multiples

ASML: Q1 2025 Results and Future Outlook

ASML's share price fell 5.2% following a report of weaker-than-expected orders for its chip-making machines and a warning about the uncertainty created by potential tariffs. The company's finance chief suggested the order dip was due to normal fluctuations rather than tariff concerns. However, the broader concern about tariffs, particularly those potentially imposed by the U.S. on imported equipment or by other countries on ASML's U.S. exports, has introduced significant uncertainty. While ASML's first-quarter sales and net profit exceeded expectations, the tariff-related uncertainty led the company to provide a wider-than-usual sales and gross margin forecast for the current quarter, further contributing to investor unease.

Strong Q1 2025 Performance:

ASML reported a robust start to the year, with total net sales reaching €7.7 billion, aligning with their guidance. This figure includes €2 billion from their Installed Base business. The company's gross margin came in at a strong 54.0%, exceeding their initial guidance. This outperformance was attributed to a favorable EUV product mix and the achievement of customer productivity milestones on installed EUV systems. Net income for the quarter stood at €2.4 billion, resulting in an earnings per share of €6.00. Net system bookings in Q1 amounted to €3.9 billion, with €1.2 billion from EUV systems and €2.7 billion from non-EUV systems. Logic accounted for 60% of these bookings, with the remaining 40% coming from memory.

ASML acknowledged the increasing uncertainty in the macro environment due to recently announced tariff discussions, which are very dynamic and just starting. The end state of these discussions is currently unknown, making the potential impact on customers, suppliers, and ASML unclear and evolving. ASML is actively working with the entire ecosystem to try and minimize the overall impact.

Technology Roadmap Progress:

ASML continues to make significant strides in its technology roadmap. Regarding Low NA EUV (NXE:3800E), the company has started upgrading systems in the field to their final 220 wafers per hour configuration and is now shipping all new NXE:3800E systems at full specification. The maturity of this system is reaching the level needed for high-volume manufacturing, with several logic and memory customers ramping advanced nodes using it. This productivity gain supports the cost of technology reduction roadmap, enabling more opportunities for EUV single-exposed adoption, which benefits customers with shorter cycle times, simplification, and improved yield.

In High NA EUV, ASML shipped its fifth and final EXE:5000 system in Q1 and now has these tools at three different customers. Shipments of the follow-on model, the EXE:5200, began in Q2 2025. Customer presentations at the SPIE conference highlighted the key performance and maturity milestones achieved with High NA, emphasizing its benefits in process simplification, cost, and cycle time reduction.

Long-Term Prospects Driven by AI:

ASML's long-term outlook remains positive, with Artificial Intelligence (AI) identified as the key driver for growth in the semiconductor industry. The demand for AI continues to be strong, presenting an upside potential to reach the upper range of their 2025 revenue guidance of €30 billion to €35 billion if customers can add capacity. ASML anticipates 2025 and 2026 to be growth years.

The company reiterated its 2030 revenue opportunity between €44 billion and €60 billion with a gross margin between 56% and 60%, as presented during their Capital Markets Day in November 2024. This growth is expected to be supported by a product mix shift towards advanced Logic and DRAM, driven by end-market dynamics. However, ASML acknowledges increased uncertainty in the macro environment due to recent tariff announcements, the potential impact of which remains unclear.

China EUV Competition

ASML CEO Christophe Fouquet addressed the topic of China potentially developing its own competing EUV lithography project during call. He stated that there is nothing really new to report on this front and anticipates continued news in this area, which he believes is primarily driven by China's strong desire to possess this technology and showcase progress. Fouquet characterized the information seen so far, including some pictures, as research news rather than evidence of a viable product. He elaborated that while generating EUV light or producing an EUV mirror might be possible, it does not constitute sufficient proof of a serious product in development. The CEO reiterated his long-standing view that it will require many, many years for China to successfully manufacture an EUV machine. He further noted that even if China were to create machines with comparable precision, it would still need to achieve the same levels of uptime and manufacturing yields that ASML's systems provide

Valuation Estimates:

Morningstar's equity analyst, Javier Correonero, maintains a fair value estimate of $960.00 USD for ASML (as of April 16, 2025), suggesting a significant upside from the last closing price of $683.16 USD. They model 2025 and 2026 sales of €33 billion and €37 billion, respectively. They view the recent dip in ASML's stock as a compelling opportunity amid macro concerns, noting that the stock is already discounting significant macro uncertainty.

Wells Fargo Securities has an Overweight rating with a price target of $840.00 USD (as of April 16, 2025). Their price target is based on 26x their 2026 EPS estimate and 20x their 2026 EV/EBITDA estimate. They believe ASML's positioning as the sole provider of EUV technology warrants a premium multiple.

Conclusion:

ASML's Q1 2025 results demonstrate a strong start to the year, driven by healthy demand and strong execution. Progress on both Low NA and High NA EUV technologies positions the company well to support the evolving needs of its customers. While the long-term prospects are bright, fueled by the growth in AI, uncertainties related to the macroeconomic environment, particularly tariffs, will need to be monitored. Analyst valuation estimates suggest a favorable outlook for ASML's stock price over the longer term.