ASML Named Top Q3 Pick by Bernstein on Margin Expansion and AI Demand

Bernstein has named Dutch semiconductor equipment manufacturer ASML its top investment idea for the third quarter of 2026, citing strong growth visibility and underappreciated potential for margin expansion. The investment firm reiterated its Outperform rating on the stock and set a price target of €2,500.

The Analyst's Thesis

Bernstein's positive outlook is anchored in the ongoing surge in wafer fabrication equipment (WFE) spending, which is being driven by the rapid growth of artificial intelligence. ASML is uniquely positioned as the primary supplier of essential extreme ultraviolet (EUV) and deep ultraviolet (DUV) lithography tools required to produce the world's most advanced chips.

The firm notes that the importance of lithography in the chipmaking process is increasing. According to its analysis, lithography intensity is rising from 20% to nearly 30% for DRAM production as it transitions to more EUV layers, and it remains above 30% for advanced logic chips. Bernstein also anticipates that next-generation High-NA EUV technology will see widespread adoption by 2030.

Underestimated Pricing Power

A core component of Bernstein's argument is that the market underestimates ASML's pricing power and its potential to expand profit margins. The firm highlights that EUV machine prices have already increased by 20% over two years with the shift to newer models. It believes further price hikes are possible, allowing ASML to capture more value.

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Bernstein projects that EUV margins could expand into the mid-60% range from price increases alone, with potential for more improvement. The firm also pointed out that Japanese equipment manufacturers have already confirmed price hikes, suggesting a favorable environment for ASML to do the same. This view was recently supported by ASML's Chief Financial Officer, who stated the company has room to raise prices and that its EUV production capacity is nearly fully booked through the end of 2027.

Addressing Market Concerns

Bernstein also addressed investor concerns about China, arguing they are likely "overdone." The firm noted that ASML's revenue contribution from China had already declined to 16% in the first half of the year, the lowest among its WFE peers.

While China is reportedly developing its own DUV machines, Bernstein believes these tools will not be competitive with ASML's technology in the foreseeable future. For DRAM production specifically, the firm sees a 1:1 attachment ratio for EUV to DUV machines, meaning DUV demand should grow in line with overall capital expenditures in the sector.