ASML Earnings: Investors Eye Capacity and China Export Curbs Amid AI Boom

ASML, the sole manufacturer of critical equipment for advanced semiconductor production, will report its quarterly earnings on Wednesday, putting its production capacity and strategy for navigating U.S. export controls on China under intense scrutiny from investors. The report comes after the company's shares have surged nearly 70% this year, fueled by an AI-driven boom in chip demand.

High Expectations for a 'Beat-and-Raise' Quarter

Analysts polled by LSEG forecast the Netherlands-based company will report a second-quarter net profit of €2.61 billion, an 8.8% increase, on revenue of €8.8 billion, up 14%. Many analysts anticipate a "beat-and-raise" report, expecting ASML to increase its full-year revenue guidance from the current range of €36 billion to €40 billion, according to a Reuters report.

The optimism is driven by massive demand from memory chip makers like SK Hynix, Samsung, and Micron, as well as from TSMC, the primary manufacturer for Nvidia's AI chips. "We expect ASML to have a beat-and-raise earnings report,” said Mehdi Hosseini, an analyst at Susquehanna, who noted that all of the company's capacity through the end of 2027 may already be booked.

Spotlight on Production Capacity

As the only producer of Extreme Ultraviolet (EUV) lithography systems—the massive, complex machines required for cutting-edge chips—ASML's ability to ramp up production is a key factor in the expansion of global AI infrastructure. The company aims to ship 60 EUV tools this year and 80 in the next.

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ASML has stated it is exploring "creative ways" to boost output beyond its stated theoretical capacity of 90 machines per year, including upgrading older tools and accelerating assembly and installation. To support this, the company has secured additional long-lead-time components, such as lenses from Zeiss and high-power lasers from Trumpf, according to Reuters.

Geopolitical Headwinds and Valuation Questions

A key risk clouding the outlook is a proposed U.S. law requiring allies to restrict China's access to advanced chipmaking technology, which specifically names ASML. While the company does not sell its most advanced EUV tools to China, the country is forecast to account for up to 20% of its sales this year through purchases of less-advanced DUV systems.

Amid the soaring demand, some analysts are questioning the company's valuation, which has reached a market capitalization of €610 billion ($696 billion). KBC analyst Thomas Couvreur noted the stock trades at 49 times estimated 2027 earnings, maintaining a 'hold' recommendation. Others, like ING analyst Marc Hesselink, see potential for further gains, suggesting strong results could help the stock catch up to the outperformance of the benchmark Philadelphia Semiconductor Index.