ASML: The Booming Nvidia, Can It Warm Up the the cold reality of lithography machines?

$ASML(ASML.US) released its Q2 2025 financial report (ending June 2025) before the U.S. stock market opened on the afternoon of July 16, 2025, Beijing time. Key points are as follows:

1. Revenue & Gross Margin: a) This quarter's revenue was 7.7 billion euros, up 23.2% year-on-year, exceeding market expectations (7.5 billion euros). The year-on-year growth was driven by the recognition of revenue from one High NA EUV system and increased revenue from installation and upgrade services. b) This quarter's gross margin was 53.7%, exceeding the company's guidance (50-52%), mainly due to the increased proportion of service revenue, which structurally boosted the overall gross margin, and the negative impact of tariffs was weaker than expected.

2. Expenses and Profit: The company's R&D expenses and sales management expenses remained relatively stable, with net profit for the quarter reaching 2.3 billion euros, up 45% year-on-year, mainly driven by revenue and gross margin growth. The company's net profit margin for the quarter was 30%.

3. Specific Business Conditions: Lithography system revenue was 5.6 billion euros, up 17.5% year-on-year; service revenue was 2.1 billion euros, up 41.4%. The ratio of the two businesses is approximately 7:3. Although service business was the main driver this quarter, lithography systems remain the core part of the company's performance.

1) Lithography System Revenue: EUV and ArFi are the main sources of revenue in lithography systems, together accounting for nearly 91%. EUV revenue for the quarter was approximately 2.5 billion euros, and ArFi revenue was approximately 2.3 billion euros;

2) Lithography System Shipments: ArFi shipments for the quarter were 31 units, still the highest in terms of quantity. EUV shipments for the quarter were 11 units, although the quantity is small, the average price of EUV is significantly higher than ArFi.

3) Lithography System Average Price: Dolphin Research estimates the average price of EUV this quarter remained around 230 million euros, while the price per unit of ArFi was approximately 75.8 million euros, with a price ratio of approximately 3:1.

4. ASML Core Focus:

a. Regional Revenue: Taiwan was the main source of revenue this quarter (35%), contributing approximately 2.7 billion euros; Mainland China still contributed around 2.1 billion euros in revenue this quarter, accounting for 27%. The current shipment pace in Mainland China remains relatively stable, basically meeting the company's expectation of over 25% share.

b. Order Indicators: The company's order amount for the quarter rebounded to 5.54 billion euros, up 41% quarter-on-quarter, better than market expectations (4.5-4.8 billion euros). The order performance was decent, indicating a moderation in cautious expectations from downstream customers.

5. ASML Performance Guidance: Q3 2025 expected revenue is 7.4-7.9 billion euros (below market expectations of 8.21 billion euros) and gross margin (GAAP) is 50-52% (market expectations 51.4%).

Dolphin Research Overall View: Full-year guidance adjustment, lack of company confidence.

Although ASML's quarterly financial data was decent, with revenue and gross margin meeting market expectations, the market's focus is more on order conditions and future operational guidance.

a) Order Data: The company's net order amount for the quarter returned to 5.54 billion euros, up 41% quarter-on-quarter. Due to the uncertainty of tariffs and the "disappointing" order data from the previous quarter, the market had relatively low expectations for the company's order situation this quarter (4.5-4.8 billion euros). However, the order amount this quarter returned to over 5 billion euros, indicating a moderation in cautious expectations from downstream customers affected by tariffs;

b) Revenue Guidance: Although order data has warmed up, the company's revenue expectations for the second half of the year remain low, indicating a lack of confidence in the operational aspect. The company expects next quarter's revenue to be only 7.4-7.9 billion euros, with no significant quarter-on-quarter improvement. Additionally, the company has adjusted its full-year revenue expectations from 30-35 billion euros to a year-on-year growth of about 15% (corresponding to 32.5 billion euros). On one hand, this reflects that the company's overall full-year guidance expectations have been lowered to the previous low range; on the other hand, it can be inferred that the company's fourth-quarter revenue may still see a year-on-year decline (if the third quarter can achieve 7.9 billion euros, then the fourth quarter will only be about 9.16 billion, lower than last year's fourth quarter of 9.26 billion).

In summary (a+b), although ASML's downstream customer orders have warmed up, there is no sign of sustainability, and the company's revenue side is difficult to see growth, with the risk of a decline in the fourth quarter.

For ASML, the current market has concerns about ASML itself, mainly due to three reasons: 1) The uncertainty of U.S. tariffs will still affect customer capital expenditures; 2) Samsung and Intel are still in a budget-tightening phase; 3) Potential risks in the Chinese region. This financial report has not eliminated market concerns, and the downward adjustment of guidance further increases market worries.

In terms of investment, from a long-term perspective, the company is still the absolute leader in the EUV market, and semiconductor manufacturers like TSMC need the company's equipment for expansion. The company has unique value in the semiconductor equipment field. However, from a short-term perspective, the company faces risks such as tariff impacts, and the contraction of Samsung and Intel. Combined with the company's current market value (324.1 billion USD), the PE corresponding to the company's expected net profit for 2025 is about 28 times, with a year-on-year growth of 29% (assuming revenue +15%, gross margin +2pct, tax rate 17.2%, EUR/USD=1.1626).

Although AI is currently driving demand growth for advanced processes, unlike TSMC, the company is still more affected by the overall semiconductor industry, which is still in a weak industry cycle in the traditional semiconductor field, with mobile phone and PC shipments only seeing low single-digit growth for the year. Especially at this stage, the further concentration of downstream customers weakens ASML's voice in the semiconductor industry chain. And with the company's three major risks not yet eliminated, and the full-year guidance being adjusted downward, it will undoubtedly impact the company's stock price in the short term.

Here is Dolphin Research's detailed analysis of ASML:

1. Core Data: Orders Rebound, Full-Year Guidance Downgraded

1.1 Revenue:
ASML achieved revenue of €7.69 billion in Q2 2025, slightly exceeding the market expectation of €7.5 billion. This represents a 23.2% year-on-year growth, primarily driven by increased revenue from EUV products and installation and upgrade services. However, there was a slight quarter-on-quarter decline in revenue, impacted by uncertainties such as tariffs and the relatively cautious capital expenditure from downstream customers.

1.2 Gross Profit and Gross Margin:
ASML achieved a gross profit of €4.13 billion in Q2 2025, reflecting a year-on-year increase of 28.6%. In terms of gross margin, the company reported a margin of 53.7% for the quarter, exceeding the upper end of its guidance range (50-52%). This was primarily due to a higher proportion of service revenue and a weaker-than-expected impact from tariffs.

1.3 Operating Expenses:
ASML's operating expenses for Q2 2025 totaled €1.465 billion, representing a 6.4% year-on-year increase.

Breaking it down:

R&D Expenses: R&D expenses for the quarter amounted to €1.167 billion, a 6% year-on-year increase. The company's R&D investment remained relatively stable, with an R&D expense ratio of 15.2% for the quarter.

Sales, General, and Administrative Expenses (SG&A): SG&A expenses for the quarter totaled €299 million, a 7.8% year-on-year increase. As the company's customer base is mainly in the B2B sector, sales expenses remained relatively stable, with a sales and management expense ratio of 3.9% for the quarter.

1.4 Net Profit:
ASML achieved a net profit of €2.29 billion in Q2 2025, a 45.1% year-on-year increase. The company's operating expenses remained relatively stable, and the growth in net profit was mainly driven by higher revenue and improved gross margin. The net profit margin for the quarter was 30%.

Looking at the company's order situation and guidance, although there has been some recovery in orders from current customers, the company will still face significant pressure in the second half of the year. ASML has downgraded its full-year revenue guidance, implying a risk of year-on-year revenue decline in Q4. Uncertainties related to tariffs, spending cuts by Samsung and Intel, and potential risks in the Chinese market will continue to be major challenges affecting the company's performance.

II. Detailed Data: Reliance on TSMC's EUV Purchases

ASML's business is composed of two main revenue segments: system sales and service income. While sales of lithography systems are the core revenue driver for the company (accounting for about three-quarters of total revenue), the increase in service revenue—such as installation and upgrades—has also been a significant driver of the company's performance this quarter.

2.1 Business Performance Overview

1）System Sales Revenue

ASML's system sales revenue for Q2 2025 reached €5.6 billion, a 17.5% year-on-year increase. The growth in system sales was primarily driven by EUV products.

Due to uncertainties such as tariffs, the company's order amount last quarter was only €3.9 billion, which led to a quarter-on-quarter decline in system sales revenue. This quarter, orders rebounded to €5.5 billion, indicating some recovery in downstream customer orders, although the year-on-year comparison remained roughly flat.

Looking at the company’s revenue guidance for the next quarter, which is between €7.4 billion and €7.9 billion, while orders have recovered this quarter, the boost to revenue is not significant, and there has been no clear improvement in the company’s business outlook.

System Sales Revenue Breakdown

The system sales revenue corresponds to the well-known lithography machines, with the largest revenue coming from EUV and ArFi, which together account for 91% of the total.

Breaking it down:

a) EUV: Revenue from EUV systems for the quarter was €2.5 billion, a 71% year-on-year increase. This quarter, the company recognized revenue from one High-NA EUV system. The total number of EUV units shipped this quarter was 11, with an average price of around €230 million per unit. With the increase in High-NA EUV shipments, the company’s EUV product average selling price (ASP) is expected to continue rising.

b) ArFi: Revenue from ArFi systems for the quarter was €2.35 billion, a 1.3% year-on-year decline. This revenue mainly comes from mainland China. A total of 31 ArFi systems were shipped this quarter, with an average price of approximately €75.8 million per unit, remaining relatively stable.

Overall, ASML’s most sold lithography systems currently are ArFi systems, with their target customers concentrated in mainland China due to factors like technological friction. EUV quarterly shipments remain above 10 units, and due to the relatively higher ASP, EUV revenue makes up about half of the company’s total lithography system revenue.

By application area: The company’s system revenue is still mainly driven by demand from the logic sector, which accounts for about 70% of the total, while the memory sector accounts for approximately 30%.

2) Service Revenue

ASML's service revenue for Q2 2025 totaled €2.1 billion, a 41.4% year-on-year increase. The company's service revenue mainly includes equipment maintenance and related projects, which are less affected by industry cycles. Despite cautious ordering behavior from downstream customers due to uncertainties like tariffs, the company continued to advance its equipment upgrade services, which were the main driver of service revenue growth this quarter. Historically, ASML's equipment orders have been heavily influenced by industry cycles and external factors, while service revenue remains relatively stable, showing a consistent upward trend.

2.2 Regional Revenue Breakdown

ASML’s revenue for this quarter primarily came from Taiwan, mainland China, South Korea, and the United States, with these four regions collectively accounting for 91% of total revenue. Taiwan was the company's largest revenue source this quarter, driven by TSMC's demand. Fueled by AI-related demand, TSMC raised its full-year capital expenditure from $30 billion last year to around $38–42 billion.

Regarding mainland China, ASML’s revenue from this region was approximately €2.08 billion this quarter, maintaining a share of 27%, which aligns with the company management's earlier guidance that more than 25% of orders would come from this region.

Although AI demand is currently strong, ASML, as part of the upstream semiconductor supply chain, is still primarily influenced by the overall industry cycle. Traditional semiconductor demand remains weak, with mobile phones and PCs experiencing only low single-digit growth this year. While ASML's major client, TSMC, has increased its capital expenditure plans, the company's other two clients—Intel and Samsung—are still reducing their spending. Currently, the industry is experiencing structural demand driven by AI, and ASML’s growth will mainly depend on customers like TSMC, Micron, and SK Hynix. However, customers from the traditional sectors remain cautious, which limits the potential for a significant improvement in ASML's performance.

In addition, ASML faces factors such as "tariff uncertainties" and "potential risks in the Chinese market," which have led to a lack of confidence in the company’s own performance. This quarter, ASML lowered its full-year revenue guidance from the previously projected €30–35 billion to a relatively lower range (around €32.5 billion), indicating that the company expects flat revenue growth for the second half of the year.

ASML remains the undisputed leader in the lithography field, which underpins its long-term value. However, from a short-term perspective, the "non-growing second half" and "multiple external risks" will put significant pressure on the current stock price.

Dolphin Research on ASML

ASML

April 16, 2025, Conference Call Minutes "ASML (Minutes): Even if tariffs are implemented, it should not be the main bearer"

April 16, 2025, Financial Report Commentary "ASML: Order decline "Alarm", tariffs will strike again?"

January 29, 2025, Conference Call Minutes "ASML: Mainland China revenue will fall to around 20% (4Q24 Conference Call)"

January 29, 2025, Financial Report Commentary "ASML: The leader returns, the showstopper arrives"

October 15, 2024, Conference Call Minutes "ASML: Mainland China business will fall to around 20% (FY24Q3 Conference Call Minutes)"

October 15, 2024, Financial Report Commentary "ASML: "Fracture-level" embarrassment, becoming AI's first killer?"

July 17, 2024, Conference Call Minutes "ASML: Expected EUV shipments similar to last year (FY24Q2 Conference Call Minutes)"

July 17, 2024, Financial Report Commentary "ASML: High expectations, slow landing, can't catch up with the market "AI dream""

April 17, 2024, Conference Call Minutes "ASML: 2024 transition, 2025 rise (FY24Q1 Conference Call Minutes)"

April 17, 2024, Financial Report Commentary "ASML: Performance collapse, AI wind doesn't reach lithography machines?"

January 24, 2024, Financial Report Commentary "ASML: Explosive orders, semiconductors going up?"

October 18, 2023, Financial Report Commentary "ASML: Jewel in the crown, can't escape the cycle curse"

July 21, 2023, Financial Report Commentary "ASML: Outstanding ability, still subject to cycle whims"

September 21, 2023, In-depth "ASML: Is the lithography king with a valuation of less than 30 times expensive?"

July 14, 2023, In-depth ""Ultimate Faith" ASML"

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