ASML (ASML 1.35%) fell 8.3% on July 16 in response to its second-quarter 2025 results and guidance. Investors may be wondering why ASML dipped so much, given it beat analyst estimates for the quarter.
Here's why the sell-off is a buying opportunity for long-term investors interested in an exciting artificial intelligence (AI) growth stock.
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A long-term winner from AI investment
ASML makes semiconductor lithography machines that are used by chip foundries (like Taiwan Semiconductor Manufacturing (NYSE: TSM), Samsung Electronics (OTC: SSNL.F), Intel (NASDAQ: INTC), etc.). ASML's deep ultraviolet (DUV) systems use lenses to print features on microchips, while its extreme ultraviolet (EUV) systems use mirrors.
The EUV machines are magnitudes more expensive than DUV, with the latest ultra-powered high-numerical aperture (high-NA) versions costing as much as $400 million a pop and the low-NA EUVs starting at about $150 million. DUVs cost anywhere from $5 million to $90 million.
DUVs still make up the majority of ASML's sales. EUVs are more precise, have fewer errors, reduce manufacturing time, and lower overall costs, making them a good long-term investment, especially for fabs that are fulfilling more chip orders to keep up with artificial intelligence (AI) demand.
In this vein, the build-out and commercialization of EUV technology has been the unsung hero behind the AI revolution. The EUV machines are so precise that they print microchips using light with wavelengths of just 13.5 nanometers -- which is almost as small as an X-ray. The technology allows ASML to pack more transistors per microchip, which is essential for increasing computing power.
Laying the groundwork for future growth
With two quarters now in the books, ASML updated its full-year guidance. The company expects sales to grow 15% compared to 2024 (which would be 32.55 billion euros or $37.79 billion) and gross margin to be around 52% -- which is slightly higher than the 2024 gross margin of 51.3%.
However, the company stated that it is experiencing increasing macroeconomic and geopolitical uncertainty, which will directly and indirectly impact its business and the timing of capital expenditures for its customers. The line that likely spooked investors the most from ASML's press release was the following: "Against this backdrop, while we are still preparing for growth in 2026, we cannot confirm it at this stage. We will continue monitoring developments over the coming months."
The guidance came as a surprise given ASML is seeing strong demand for its EUV technology and that AI spending has been surging, especially from hyperscalers with deep pockets. But long-term investors can rest easy knowing that the company's medium-term guidance, released in November 2024, is still intact. ASML still expects 44 billion to 60 billion euros ($51.08 billion to $69.65 billion) in 2030 revenue, and gross margin to rise to a new range of 56% to 60%.
ASML's margin increase is likely due to EUV bookings making up a higher percentage of revenue. In its latest quarter, ASML's total net sales of 7.69 billion euros ($8.9 billion) consisted of 2.1 billion euros ($2.43 billion) of servicing its installed base and 5.5 billion euros ($6.37 billion) in net bookings, of which 2.3 billion euros ($2.66 billion) or 42% were EUVs. However, ASML only sold 11 new EUVs in the quarter compared to 76 systems in total -- showcasing just how expensive and high-margin these machines are.
Taking the EUV bookings and dividing them by 11 tells us that the average EUV sales price in the quarter was 209 million euros, or $242 million. ASML's margins should continue rising as EUVs make up a larger percentage of net bookings, and the share of EUVs it sells pivots from majority low-NA to high-NA.
ASML is a high-conviction buy
The sell-off in ASML stock is an overreaction and a reminder that stock prices can move in the short term for reasons that have little to do with the long-term investment thesis. Management is being cautious and wants to avoid overpromising and underdelivering. But throughout its earnings materials and commentary on the earnings call, the company reiterated strong demand for its EUV systems and the long-term potential of AI.
ASML is telling investors with a five-year time horizon to expect steady growth over that period, which is a great setup that makes the high-margin company a compelling value.
It's also worth mentioning that ASML said it plans to continue repurchasing stock, which should reduce the share count and accelerate earnings growth. The company is also rewarding its shareholders with passive income by continuing to raise the dividend. ASML only yields about 1.1%, but it's still a decent dividend considering many growth stocks have even lower yields or don't even pay dividends.
Add it all up, and ASML stands out as an excellent stock to double up on now.
