ASML Posts Record Margin as AI Demand Outruns Capacity

ASML delivered €11.7 billion in sales and a record 57.5% gross margin, guided to its strongest quarter yet, and warned that planned capacity cannot meet customer demand in 2027 or 2028.

Key Takeaways

• Sales rose 55% to €11.66 billion and operating income more than doubled to €5.17 billion, as high-margin upgrades to installed tools lifted gross margin to a record 57.5%.
• Non-current contract liabilities climbed €5.7 billion in one quarter to €9.30 billion. With quarterly bookings no longer disclosed, this is the clearest available signal of customer prepayments.
• Amsterdam shares rose about 2.8% after a 4.2% slide the prior session, as investors weighed a €14.2 billion to €15.2 billion fourth-quarter guide against a valuation near 55 times earnings.

Upgrades Carry the Quarter

ASML’s third quarter was strong in the way investors expected and stronger in a way few had modeled. Total net sales reached €11.66 billion, near the top of the €11 billion to €12 billion range set in July and 55% above the €7.52 billion recorded a year earlier. Gross margin rose to 57.5%, a company record and above guidance of 55% to 57%. Net income more than doubled to €4.96 billion, or €12.95 per share. That figure includes a €510 million gain on equity investments, which Chief Financial Officer Roger Dassen tied to the revaluation of ASML’s first tranche in Mistral AI. Remove the gain entirely and profit still exceeds the €4.05 billion that analysts polled by LSEG had forecast, according to Reuters. The beat was operational, not an accounting effect.

The source of that beat deserves attention. Installed Base Management, the service and field-upgrade business, generated €3.29 billion. That was roughly €400 million above guidance and 68% higher than a year ago. Upgrades sell additional throughput on scanners already installed on fab floors. In a market short of new machines, that is the fastest capacity a chipmaker can buy, and it is among the most profitable revenue ASML books. Research and development spending of €1.17 billion, meanwhile, rose just 6% from a year earlier. With costs largely fixed and revenue accelerating, operating income more than doubled to €5.17 billion, and operating margin expanded to 44.4% from 32.8%. Few industrial companies of this scale convert growth into profit so efficiently.

What the Balance Sheet Reveals

ASML stopped disclosing quarterly bookings after 2025, arguing that the figure had become too erratic to read momentum by. The balance sheet now offers the better gauge, and this quarter it left little room for interpretation. Non-current contract liabilities rose from €3.57 billion at the end of June to €9.30 billion at the end of September. These largely reflect customer prepayments for future deliveries, so the increase amounts to €5.7 billion of advance commitment in thirteen weeks. Chipmakers do not prepay at that scale for tools they expect to defer. The same inflow transformed cash generation. Operating cash flow reached €11.80 billion, compared with €559 million a year earlier, against capital expenditure of only €413 million.

Little of that cash lingered. ASML bought back €4.07 billion of its own shares under the 2026 to 2028 program, up from €172 million in the year-ago quarter, and repaid €1.0 billion of debt. Cash and short-term investments still climbed to €12.74 billion from €7.58 billion. An interim dividend of €1.88 per share is payable on November 4. Guidance points higher again. Fourth-quarter sales are expected at €14.2 billion to €15.2 billion with gross margin near 57%. That tightens the full-year range to €44 billion to €45 billion, from €43 billion to €45 billion. At the midpoint, 2026 revenue would rise about 36% from €32.7 billion in 2025. Full-year margin guidance of roughly 56% compares with 51% to 53% as recently as April.

The Constraint Moves Inside the Factory

The most consequential passage in the release concerns supply, not demand. In July, ASML committed to lifting low NA EUV and DUV immersion capacity by 30% in 2027 and said it was studying a further 30% for 2028. Chief Executive Christophe Fouquet now says the capacity planned for both years will fall short of what customers want. The company is examining how to exceed the 30% step for 2028. Customers keep raising their forecasts based on their views of the size and duration of AI investment, he said, and some have asked to place orders for 2029 and 2030. In the accompanying results video he put it plainly: customers ask for more tools every single day.

The binding constraint on ASML’s growth has therefore moved inside its own walls. The company broke ground last month on a major expansion in Eindhoven, Reuters reported, but the first phase will not be complete until 2029. Until then, Dassen described two levers:

• Upgrades: the upgrade portfolio adds output without new floor space.
• Faster machines: the NXE:3800F, shipping in small numbers from 2027, lifts EUV throughput from 230 to 260 wafers per hour, while next year’s immersion tools are specified at 330.

ASML expects to ship about 65 EUV systems in 2026, more than 50% above last year. Dassen also confirmed that value-based pricing talks with key customers are complete. The effects will appear partly in 2027 and fully from 2028. Scarcity, in short, will reach the price list.

High NA Comes Into Production View

The quarter brought material progress for High NA EUV, the platform on which ASML’s roadmap into the next decade rests. Fouquet said Samsung plans to deploy High NA in high-volume manufacturing from 2028, and that TSMC expects to adopt it around 2030. TSMC has also asked ASML to lead an industry consortium developing larger 12-inch reticles, an effort other leading chipmakers have joined. Intel, the earliest adopter, continues to run High NA systems in production and is extending them to more layers. ASML also introduced the YieldStar 550 overlay metrology system. Fouquet said it improves productivity by 60% and is ready for 14-angstrom logic and next-generation DRAM.

The breadth of demand matters as much as its depth. Reuters counted TSMC, Samsung, SK Hynix, Micron, Intel and Elon Musk’s Terafab among customers with expansion plans. China tells a different story. A year ago, ASML warned that Chinese sales would fall significantly in 2026 from their 2024 and 2025 levels. Dassen now expects the country to contribute about 20% of this year’s revenue. That normalization removes a volatile variable from the outlook, although export licensing remains a stated risk in the company’s filings. It also concentrates the growth case on the AI build-out in leading-edge logic and memory. Full-year sales of €44 billion to €45 billion already reach the bottom of the €44 billion to €60 billion range ASML set as its 2030 ambition, four years early.

A Valuation That Had Run Ahead

Shares came into the release bruised. ASML fell 4.2% in Amsterdam on October 13, closing at €1,509.60. Equipment stocks sold off after Applied Materials declined to issue an industry spending forecast at its investor day, and reports on Chinese memory maker CXMT and on AI financing added to the unease. The results steadied the stock. Shares rose about 2.8% to €1,551.60 in Amsterdam, Bloomberg reported, although early US indications for the Nasdaq listing pointed lower, near $1,679. ING analyst Marc Hesselink called management’s commentary on demand visibility and capacity very constructive. He said he expected consensus earnings forecasts to rise through 2028.

The muted reception says more about expectations than about the business. ASML shares had gained roughly two-thirds this year before the report and traded at about 55 times trailing earnings, against a five-year median near 39. The midpoint of fourth-quarter guidance sat about 4% above the €14.19 billion LSEG consensus. That is a clean beat, but a modest one for a stock priced for excellence. For investors, the debate has shifted. Demand is no longer the open question, since the company is effectively selling its output years in advance. Two things remain uncertain: how quickly ASML can convert that demand into shipments, and how far value-based pricing can carry margins toward the upper end of its 2030 range. This quarter settled the first point convincingly. The second will be decided on ASML’s production lines, not in its order book.