BREAKINGVIEWS-ASML monopoly merits a bigger share-price premium

By Karen Kwok

LONDON, Jan 28 (Reuters Breakingviews) - ASML ASML.AS boss Christophe Fouquet, in one sense, has the easiest job among major technology company CEOs. The $590 billion Dutch company he runs has a monopoly on advanced lithography machines that etch circuits onto semiconductors, demand for which has boomed thanks to artificial intelligence. Blowout fourth-quarter orders, reported on Wednesday, reinforce that dominance. Strangely, however, this enviable position doesn't entirely show up in the share price.

The industry backdrop looks bright. Chipmakers like TSMC 2330.TW and Samsung are ramping up their investments in anticipation of massive orders from chip designers like Nvidia NVDA.O, whose silicon powers the data centres that OpenAI and others use to train their models. TSMC is accelerating factory construction at home in Taiwan and also in Arizona, and has applied for permits to build a fourth U.S. plant. One reason is that Nvidia’s next-generation designs will require four times as many wafers as its current ones, referring to the thin layers of silicon onto which chip circuits are printed. Hence ASML's order boom: its cutting-edge, laser-filled machines are integral to turning raw materials into semiconductors.

Investors have responded, sending ASML shares up about 5% early on Wednesday, meaning that the company's stock is now up about 40% so far in 2026. But in valuation terms, at least relative to other chip equipment suppliers, the numbers look less impressive. The Dutch group trades at about 45 times 12-month forward earnings, according to LSEG Datastream figures. That's high, but it's just 15% above the average of peers Lam Research LRCX.O, Applied Materials AMAT.O, KLA KLAC.O and ASM International ASMI.AS. In March 2024, ASML sported a 50% premium to the same cohort, while the gap was 88% five years ago.

One problem is China, where Fouquet faces U.S. restrictions on shipping his most advanced machines. The People's Republic accounted for 42% of ASML's sales in the fourth quarter of 2024, a figure that fell to 36% in the most recent quarter and will sink further to 20% this year, per finance chief Roger Dassen. ASML was catching up on pandemic-era backlogs from Chinese chipmakers - a boost that won't likely repeat given the restrictions on newer equipment. Crucially, Beijing is also now pushing its local industry to develop advanced lithography tools domestically, with some success, raising the threat of long-term competition. Another, separate, risk is that ASML gets caught in the crossfire of rising tensions between Europe and the United States. The Dutch government has previously clashed with the U.S. government on Chinese export restrictions.

Still, American chipmakers like Intel INTC.O clearly need ASML more than ASML needs them. That gives the company and the Netherlands leverage over U.S. President Donald Trump. And the Chinese competitive threat may be overstated: technology analysts generally see it as unlikely that firms from the People's Republic will be able to compete for the foreseeable future, given the complexity of advanced lithography.

The takeaway is that ASML’s technological lead still looks solid. It probably deserves a bigger premium over industry peers with a less enviable competitive position.

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CONTEXT NEWS

ASML on January 28 reported stronger-than-expected orders for the final three months of 2025.

Fourth-quarter bookings were 13.2 billion euros ($15.8 billion), compared with 5.4 billion euros in the previous quarter. Analysts were expecting 6.3 billion euros, according to data gathered by Visible Alpha.

Netherlands-based ASML also hiked its goals for 2026. It now expects full-year sales of between 34 billion and 39 billion euros, compared with analysts' expectations of 35 billion euros, according to LSEG data. It had previously forecast flat-to-higher sales compared with 2025, which came in at 32.7 billion euros.

Shares of ASML were up 4.9% as of 0951 GMT on January 28.