ASML started in a leaky shed in the Netherlands in 1984, trying to compete against much larger, established equipment manufacturers. Its early years were so difficult that it nearly went out of business.

Four decades later, it holds one of the most extraordinary positions in modern technology: ASML is the only company in the world capable of building the machines that make the most advanced chips possible.

And these are no ordinary machines. To generate the light required, lasers strike microscopic droplets of molten tin 50,000 times every second. That light must then travel through a vacuum, guided by extraordinarily precise mirrors, to print circuits measured in billionths of a meter onto silicon wafers.

It took decades of research, billions in investment, and collaboration with specialized suppliers around the world to make this possible. No competitor has successfully replicated the technology at commercial scale.

As AI drives unprecedented investment in advanced computing and memory, demand for ASML's machines continues to grow. What began in a leaky shed has become one of the most important companies in the world.

Disclaimer: This is not financial or investment advice. I'm sharing my personal investment decisions and reasoning for educational and informational purposes. Always do your own research before making any investment decisions.

ASML is the sole manufacturer of extreme ultraviolet (EUV) lithography machines, which chipmakers use to produce the world’s most advanced semiconductors. It also sells deep ultraviolet (DUV) systems, metrology and inspection equipment, and provides services and upgrades for its installed base. The third quarter delivered record revenue and sharply higher profitability as customer demand continued to strengthen.

Quarter at a Glance

What Mattered

1/ The Expansion Isn’t Enough

In Q2, ASML announced plans to increase production capacity for its Low-NA EUV and immersion DUV machines by roughly 30% in 2027, with another 30% increase under consideration for 2028. Three months later, management believes even those plans will not be enough. Customer demand has continued to strengthen, and ASML is now exploring capacity growth beyond 30% in 2028.

Management attributed this to continued shortages of advanced logic and memory chips, which its customers expect to persist through at least 2028. ASML is receiving more orders for 2028, while customers are already expressing interest in placing orders for 2029 and 2030. Those later requests have not yet been accepted, as ASML wants to understand demand across its customer base and determine what it can realistically deliver before committing production capacity.

During the earnings call, analysts questioned whether customers might be exaggerating their forecasts simply to secure equipment. CEO Christophe Fouquet pushed back, explaining that ASML validates demand against detailed factory construction plans and expected installation schedules. Another analyst asked whether ASML should secure firm orders further in advance to better validate demand. CFO Roger Dassen explained that existing purchase orders already involve substantial down payments and binding commitments, making cancellations costly. Customers aren't signing these orders on a whim, he argued.

On the production side, ASML plans to increase output by making better use of its existing manufacturing footprint, shortening production times, and coordinating capacity expansion with suppliers. Management expressed confidence in its supply chain's ability to support the expansion, although scaling production remains challenging. Fouquet declined to commit to specific additional output targets for 2028 while those plans are still being evaluated.

2/ Higher Prices Ahead

ASML has successfully negotiated higher prices with customers for its most critical manufacturing systems and related upgrades. CFO Roger Dassen confirmed that the increases won't affect 2026 results, but should begin contributing to revenue and gross margins in 2027, with the full impact expected from 2028 onward.

Management emphasized that it isn't looking to raise prices every year simply because demand is strong. ASML wants to maintain its value-based pricing approach, charging customers according to the productivity and economic benefits its equipment provides. Dassen explained that opportunistic increases could lead customers to demand price reductions when the semiconductor cycle weakens, which the company wants to avoid.

Beyond pricing, Dassen outlined several factors that could support gross margins in 2027. Higher production volumes should improve fixed-cost absorption, while a greater share of EUV and immersion DUV systems, including newer EUV models, should improve product mix. Installed Base Management also remains an important contributor. Sales reached €3.3B this quarter, nearly €400M above expectations, helping push gross margin to a record 57.5%.

However, management acknowledged that expanding production brings additional manufacturing and supplier costs, while the sustainability of exceptionally strong upgrade demand remains uncertain. Dassen said the company would provide its 2027 gross margin outlook in January. Still, ASML sees a substantial remaining opportunity in its installed base, with many existing machines yet to receive upgrades and additional upgrade products planned for the coming years.

3/ The Next Generation of EUV

ASML is seeing growing adoption of EUV technology in advanced memory manufacturing. Memory-related net system sales are expected to grow approximately 75% in 2026, driven by customers expanding capacity and increasingly using EUV to manufacture advanced DRAM chips. This provides another source of demand alongside advanced logic, which still accounts for a slightly larger share of system sales.

Further out, ASML is making progress with High-NA EUV, its next generation of lithography machines designed to manufacture increasingly advanced chips. Intel announced it has processed more than one million wafers using High-NA systems, with performance meeting or exceeding comparable processes using existing EUV technology. Samsung and TSMC also announced plans to introduce High-NA into high-volume manufacturing in 2028 and 2030, respectively. Meanwhile, ASML is working with TSMC and other industry partners to develop larger photomasks that could improve High-NA productivity, with production of those masks targeted for 2033.

Management expects High-NA adoption to increase as customers validate the technology and introduce it across more manufacturing processes. However, the rollout remains in its early stages. When asked about potential shipment volumes in 2028, CEO Christophe Fouquet declined to provide specific targets, explaining that adoption will depend partly on how customers balance new technology with their broader capacity expansion plans.