Wall Street Unanimously Bullish: ASML's Capacity Surge, The 'Peak Theory' for Memory Can Be Put to Rest

Author: Wall Street News

ASML delivered a far better-than-expected Q2 report, significantly raised its full-year guidance, and, unusually, provided a capacity expansion roadmap for 2027 to 2028, directly addressing the core market doubt about the sustainability of AI-driven demand. Major Wall Street investment banks immediately voiced collective support, with Goldman Sachs, JPMorgan, Barclays, and others uniformly maintaining or reiterating buy ratings, believing this performance thoroughly validates the AI supply bottleneck thesis and provides a powerful rebuttal to the bearish narrative of memory prices "peaking in 2028."

ASML's Q2 revenue was €9.3 billion, exceeding the Bloomberg consensus of €8.9 billion, and its gross margin of 54% significantly surpassed the guidance range of 51%-52%. The company subsequently raised its full-year 2026 revenue guidance from €36-40 billion to €43-45 billion, with the midpoint about 11% higher than the market consensus; the full-year gross margin guidance was also raised to 54%-56%. More crucially, management explicitly stated plans to expand low-NA EUV and immersion DUV capacity by approximately 30% in 2027 and 2028 respectively, a statement that directly triggered a substantial upward revision of market earnings expectations for 2028.

Following the announcement, ASML's Amsterdam-listed shares rose about 4%, while Nasdaq 100 index futures also gained around 40 basis points. SK Hynix's Seoul-listed shares surged 8.8% in a single day, catching up to the 27% gain in its American Depositary Receipts previously. Goldman Sachs maintained its buy rating with a 12-month price target of €2,000, implying about 29% upside from the current price; JPMorgan similarly maintained an overweight rating with a target price of €1,900.

Performance Exceeds Expectations Across the Board, Q3 Guidance Even More Surprising for the Market

All of ASML's core financial metrics for Q2 surpassed market expectations. According to a Goldman Sachs research report, Q2 revenue of €9.327 billion was 6% above the consensus; EBIT of €3.456 billion exceeded consensus by 13%; EPS of €7.58 beat consensus by approximately 11%. The gross margin of 54% not only far exceeded the upper end of the guidance but also surpassed the market consensus by about 230 basis points.

The Q3 guidance also significantly exceeded expectations. The company expects Q3 revenue between €11 billion and €12 billion, with the midpoint about 11% higher than the market consensus; gross margin guidance of 55%-57% implies Q3 EBIT will be approximately 26% above the market consensus. According to a JPMorgan research report, the Q3 revenue midpoint of €11.5 billion is 12% above consensus, and the gross margin midpoint of 56% is 350 basis points above consensus.

JPMorgan analyst Sandeep Deshpande noted that part of the earnings beat was driven by the Installed Base Management (IBM) business, with its revenue about €300 million higher than expected. Software-led productivity upgrades and the continuous expansion of the EUV service installed base are expected to drive over 30% growth in this business this year, providing additional support for gross margins.

Capacity Expansion Roadmap Exceeds Buyer Expectations, 2028 Earnings Potential Significantly Revalued

The most noteworthy aspect of this earnings report for the market was management's clear statement regarding capacity expansion for 2027-2028. ASML stated that it will expand low-NA EUV capacity by about 30% in 2027 to approximately 85 units from a baseline of about 65 units in 2026, and is studying a further 30% expansion in 2028 to about 110 units. Concurrently, immersion DUV capacity will expand from about 130 units in 2026 to about 169 units in 2027, and further to about 220 units in 2028.

According to Goldman Sachs calculations, the above capacity plans imply low-NA EUV shipments of 85/110 units in 2027/2028, significantly exceeding the market consensus of 85/89 units; immersion DUV shipments of 169/220 units also far surpass the consensus of 137/146 units.

JPMorgan pointed out that the 2028 capacity guidance already exceeds their previous highest sell-side forecast. Rough calculations suggest that if these capacity plans materialize, ASML's 2028 EPS could exceed €65, and actual earnings could be even higher when combined with the strong momentum of the Installed Base Management business. A Goldman Sachs trading desk comment also noted that the 2028 target of about 110 EUV units has entered the "super-optimistic range" (110-120 units), far exceeding the sell-side consensus expectation of about 89 units.

Goldman Sachs added that ASML has largely secured most of the EUV orders needed for 2027 and has received a considerable number of orders for 2028, with management describing order intake as "extremely strong."

AI Demand Accelerates, Dual Expansion in Logic and Memory

Management explicitly stated that AI-driven demand continues to strengthen in both the logic chip and memory segments, supporting further capacity expansion by customers at advanced process nodes. In the advanced logic field, ASML noted that customers are adding capacity at the 5/4/3nm nodes simultaneously to meet AI demand, while pushing as aggressively as possible toward 2nm mass production and beginning preparations for the transition to 1.4nm. The company expects advanced logic revenue to grow approximately 25% year-on-year in 2026.

Regarding memory, ASML stated that tight supply for DDR and HBM is prompting customers to accelerate investments, with the increased intensity of EUV and advanced immersion lithography further driving equipment demand. The company expects memory revenue to grow about 75% year-on-year in 2026.

A Goldman Sachs trading desk comment noted that as the memory market transitions toward HBM4/HBM5 and advanced 1c/1d nm nodes required for traditional server DRAM, memory manufacturing is undergoing a fundamental paradigm shift. The number of EUV layers for 1c DRAM has increased to more than five, with 1d and 0a generation plans to fully adopt EUV technology across all layers. Deep ultraviolet (DUV) multi-patterning processes have reached physical limits, making ASML the primary beneficiary of this structural transformation.

Goldman Sachs further stated that the wafer intensity required for HBM is far higher than for traditional DRAM. This dual expansion is severely squeezing global fab capacity, pushing memory prices to remain elevated for a longer period. Given the structural complexity of the transition to advanced nodes, bearish arguments predicting memory prices will peak before 2028 or that supply gaps will ease significantly "sound premature."

Wall Street's Collective Endorsement, Divergence Only on Whether 2027 Guidance is Aggressive Enough

Multiple major investment banks quickly issued positive assessments after the earnings release, but there were slight differences in the interpretation of the 2027 EUV capacity guidance.

Barclays analyst Simon Coles said ASML delivered most of what investors were looking for, and the 2027 and 2028 low-NA EUV capacity guidance should reduce debate over whether the company is supply-constrained. He noted that H1 low-NA EUV order intake could be as high as €22 billion, reaching record levels.

JPMorgan's Sandeep Deshpande believed that although the company did not reach a 90-unit EUV capacity for 2027, "we think this is immaterial" because the 2028 EUV and DUV capacity guidance far exceeded expectations, and the ~35% revenue growth in 2026 already surpasses current market expectations for the overall wafer fab equipment industry growth. The company is effectively guiding to around 30% growth for the next two years.

Morgan Stanley analyst Lee Simpson noted that although the company no longer discloses order data, management indicated that order intake remained "very strong" in H1, with customers seeking to accelerate capacity expansion, which bodes well for strong 2027 sales momentum.

Jefferies analyst Janardan Menon took a relatively cautious stance, viewing the company's outlook commentary as mixed. The strong growth in Installed Base Management business sales and gross margins were particularly positive, but the 2027 EUV guidance fell short of recently elevated market expectations.

Oddo BHF expects market consensus earnings forecasts to be raised by about 20%, stating that "ASML remains the unrivaled technology leadership story, now benefiting from an AI-driven, fundamentally different cycle."