After struggling for much of 2025, ASML Holding (ASML 0.60%) stock might finally be in a recovery mode. Following a surge during the fall and a strong earnings report for the third quarter of 2025, the stock is trading near 52-week highs.
Additionally, while a massive tailwind is backing this artificial intelligence (AI) chip manufacturing equipment company, struggles with China have weighed on the stock. Now, as its stock price surges back toward all-time highs, is it a buy, or should investors stay on the sidelines?
Image source: ASML.
The state of ASML's business
Indeed, ASML stock may look like a buy at first glance simply for its position in the semiconductor industry. It is the predominant producer of extreme ultraviolet lithography (EUV) machines, the technology needed to manufacture the world's most advanced semiconductors.
Chip stock investors most likely know of Taiwan Semiconductor Manufacturing (TSMC) and its critical role in semiconductor manufacturing. However, TSMC needs ASML's EUV machines to make its production possible.
Moreover, such machines cost hundreds of millions of dollars each. Thus, companies like TSMC and other foundries have to collectively spend billions of dollars per year to maintain these machines, serving as an additional revenue source for ASML.
Unfortunately, the Netherlands-based equipment company must contend with a key challenge in one important market: China. ASML faces pressure from the U.S. and its allies to restrict sales of such machinery to China, something that weighs on its revenue levels. On the Q3 earnings call, CEO Christophe Fouquet admitted that sales in China would "decline significantly" in 2026.
Due to this challenge, China is working to develop EUV technology on its own, particularly through Huawei. While it is not clear that Huawei or any other Chinese company has reached such a milestone, innovation from that part of the world could eventually pose a competitive threat to ASML.
Furthermore, due to the nature of ASML's business, it sells EUV machines primarily to TSMC, Samsung, and Intel. The company does also operates a deep ultraviolet lithography (DUV) machine business that has a somewhat larger client base, but that also shows how vulnerable its business can be to a slowdown if its largest customers are not buying.
ASML financially speaking
Still, for now, ASML continues to grow at a brisk pace. For the first nine months of 2025, revenue totaled 23 billion euros ($27 billion), a 21% increase compared to the same period in 2024. Thanks to efforts to slow the increase in costs and expenses, ASML was able to earn 6.8 billion euros ($7.9 billion) in net income over the same period, rising 39% from year-ago levels.
Moreover, the company projects revenue of 32.5 billion euros ($38 billion), which will amount to a 15% annual rise if that projection holds.
Fortunately, that slowdown in revenue growth has not dampened demand for ASML stock. Over the last year, it has risen by about 50%, with most of its gains made since the beginning of September.
NASDAQ: ASML
Key Data Points
Not surprisingly, those gains have raised the stock's valuation. Its P/E ratio now stands at 38. However, that is below the five-year average of 41, indicating the stock trades at a slight discount. The lower earnings multiple, along with its indispensability in the AI chip industry, should make ASML stock appear increasingly attractive to tech investors.
Buy ASML stock
Given the state of ASML stock, now looks like an opportune time to take a position. No doubt, the China situation is potentially concerning, and ASML's tiny client base makes it uncomfortably dependent on a small number of customers.
Nonetheless, companies cannot make the most advanced chips without ASML's equipment. That means ASML's machines and maintenance capabilities should stay in demand, making a permanent slump in its business unlikely.
Additionally, that market positioning makes any significant sell-off a likely buying opportunity for investors. Thus, investing in the semiconductor stock at its discounted valuation should pay off for investors long-term.
