ASML Holding (ASML 2.39%) is one of the most important semiconductor equipment makers in the world. The Dutch company is the world's largest producer of photolithography systems, which are used to etch circuit patterns onto silicon wafers. It's also the only manufacturer of top-tier extreme ultraviolet (EUV) systems, which are required for the production of the world's smallest, densest, and most power-efficient chips.

ASML's monopolization of that crucial technology -- which is used by top foundries like Taiwan Semiconductor Manufacturing (TSM 2.74%), Samsung, and Intel (INTC 1.74%) -- makes it a linchpin and bellwether of the semiconductor industry. But that reputation is a double-edged sword: Persistent concerns regarding the deceleration of sales in the PC, smartphone, and cloud markets all caused ASML's stock to decline more than 30% from its all-time high of $870.85 a share last September.

Two silicon wafers.

Image source: Getty Images.

But the stock recently rallied after it allayed some of those fears with its latest investor day presentation on Nov. 11. Let's review four green flags the company just raised regarding its long-term prospects, and why they suggest its stock could head much higher by the end of the decade.

1. ASML offered a big guidance boost for 2025 and beyond

During ASML's previous investor day last September, the company said it would generate 24 billion to 30 billion euros ($24.9 billion to $31 billion) in revenue in 2025, with a gross margin of 54% to 56%. It based those estimates on its "low" and "high" scenarios for wafer demand across the semiconductor industry.

But this time, ASML raised its 2025 guidance to 30 billion to 40 billion euros in revenue and kept its gross margin guidance at 54% to 56%. It also predicted that its annual revenue would reach 44 billion euros to 60 billion euros by 2030 with a gross margin of 56% to 60%.

The midpoint of that guidance implies ASML's annual revenue could reach a compound annual growth rate (CAGR) of 12% from 2021 to 2030. Its gross margin would also expand significantly from 52.7% in 2021 -- which isn't that surprising, since it has unmatched pricing power in the EUV market.

2. ASML is shrugging off concerns about China

ASML generated 15% of its system sales in China last year, but it only sells its lower-end deep ultraviolet (DUV) systems there. The Dutch government previously barred ASML from selling its EUV systems to China amid escalating concerns about Chinese chipmakers producing more-advanced chips.

The Biden administration recently banned all American companies from exporting advanced semiconductors, semiconductor equipment, and semiconductor services to China. But last month, ASML CEO Peter Wennink said all those bans would only have a "limited" impact on its system shipments in 2023 because it was only selling DUV systems in China.

Wennink reiterated that position during ASML's investor day presentation, saying that even if Chinese chipmakers couldn't expand their capacity from their current levels, those restrictions could cause a "temporary hiccup" but wouldn't alter its outlook for 2030 that much. He said that even if new manufacturing facilities aren't built in China, they would need to be built somewhere else to satisfy the market's growing demand for new chips.

3. An expansion of its annual capacity

In 2021, ASML sold 42 EUV systems, which cost $150 million to $200 million each and require multiple planes to ship. It's still delivering and installing these systems as rapidly as it can produce them, and it's even implementing fast shipments -- that skip part of the testing process and postpone billings for some customers -- to get them out the door faster.

Therefore, the market's demand for ASML's EUV systems is still outstripping its supply even as the semiconductor market cools off. That's because TSMC, Samsung, and Intel still need to continuously invest in smaller and denser chips to avoid falling behind the tech curve.

That's why ASML plans to increase its annual capacity to 90 EUVs and 600 DUVs (compared to 267 units in 2021) by 2025-2026. It also expects to kick off its shipments of next-gen "high-NA" EUV systems, which will enable its customers to produce even smaller chips, in 2023 -- and to ramp up its annual production capacity to 20 systems by 2027-2028.

4. ASML has a new share buyback plan

On top of all that rosy guidance, ASML announced a new share buyback plan of up to 12 billion euros ($12.4 billion), which will last through the end of 2025. That represents about 5% of ASML's current market cap, and would continue its consistent buybacks over the past decade:

ASML's capital returns over the past decade.

Image source: ASML.

ASML's stock isn't cheap at 32 times next year's earnings. But I believe its monopolization of a crucial chipmaking technology justifies that premium, and its recent investor day suggests it still has plenty of upside as it increases its capacity and launches new systems. Therefore, ASML is still an easy stock to buy and hold for long-term investors.