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ASML's stock has surged impressively over the past year, significantly outperforming broader market indices and the technology sector. Despite its seemingly steep valuation based on future earnings projections, the company's unique and critical position in the advanced semiconductor manufacturing landscape suggests it could still represent a compelling long-term investment opportunity. This article delves into the underlying factors that make ASML a potentially undervalued asset, even at its current price points.

ASML, a key player in the semiconductor industry, has experienced a remarkable 79.5% increase in its stock value over the last year, dwarfing the 26.8% gain by the tech sector and the 22.4% rise of the Nasdaq Composite. Financial analysts anticipate strong growth for ASML, forecasting earnings per share of $29.69 in 2026, which is expected to climb to $37.51 by 2027, marking a 26.3% increase. Even with such optimistic projections, the stock's trading at 35.1 times its estimated 2027 earnings per share might lead some to consider it overvalued. However, for investors with a long-term perspective, ASML's fundamental strengths could justify this premium.

The burgeoning demand for artificial intelligence (AI) chips is a significant tailwind for the semiconductor industry. Major cloud service providers and tech giants like Amazon, Microsoft, Alphabet, and Meta Platforms are making substantial investments in AI data centers, which in turn fuels demand for chipmakers such as Nvidia and Broadcom. Yet, these companies do not fabricate the chips themselves. The actual manufacturing is carried out by contract foundries like Taiwan Semiconductor, Samsung Electronics, and Intel, which operate highly sophisticated semiconductor fabrication facilities equipped with advanced machinery for precision engineering of AI chips.

Semiconductor equipment manufacturers are among the primary beneficiaries of the escalating AI expenditure, and ASML stands out as the most valuable among them. Its dominance stems from a near-monopoly in a crucial stage of chip production: lithography. ASML's Extreme Ultraviolet (EUV) lithography technology is the result of over 17 years and more than 6 billion euros of investment. This groundbreaking technology uses EUV light within a vacuum, bouncing it off specialized multi-layer mirrors, a process that enables more transistors per microchip, improved layering, and ultimately superior performance. The complexity and high-volume manufacturing capabilities of ASML's technology make it exceedingly difficult to replicate, positioning the company as an indispensable partner for chip manufacturers.

The shift towards next-generation chips is compelling foundries to procure ASML's most advanced EUV machines, leading to a surge in demand. In the fourth quarter of 2025, EUV systems constituted 56.1% of ASML's total net bookings, with two of these being the highly sophisticated high numerical aperture (NA) machines. This trend highlights a clear path for sustained growth, especially as the high-NA EUV rollout is still in its nascent stages.

While ASML's investment thesis centers on its advanced EUV technology, it is not solely an AI play. A substantial portion of its business involves Deep Ultraviolet (DUV) machines, essential for manufacturing general-purpose chips. DUV systems work in conjunction with EUV in the production of AI chips, and servicing these operational lithography machines, predominantly DUV, accounts for approximately a quarter of ASML's total revenue. This diversified revenue stream provides stability and a broader market presence beyond the cutting edge of AI chip production.

Although ASML's stock might experience periods of consolidation, allowing its earnings to catch up with its valuation, the fundamental underpinnings of the company suggest a strong likelihood of long-term outperformance against major market indexes. ASML's critical role in the semiconductor ecosystem, driven by continuous innovation in chip technology and the relentless expansion of AI, positions it to potentially achieve a market capitalization of $1 trillion, making it a standout European technology powerhouse.