ASML, the Dutch semiconductor equipment giant, gave investors a clearer picture of its 2026 prospects after its second-quarter update on July 15. The company's full-year guidance for revenue between €43 billion and €45 billion and a gross margin of 54% to 56% came in above what many analysts had expected. That prompted Berenberg, a European investment bank, to raise its price target on the stock to €2,100 from €1,570 and increase its earnings forecasts for 2026 through 2028.
Why the margin matters more than revenue
Gross margin is the percentage of sales left after subtracting the direct costs of producing goods. For a manufacturer like ASML, which makes the complex lithography machines used to etch circuits onto silicon wafers, many of its biggest costs—factories, research labs, and sales teams—are largely fixed in advance. That means even a small improvement in gross margin can have an outsized effect on operating profit and earnings per share (EPS).
Berenberg analysts noted that ASML's 54-56% margin range is above the 52.5% level many market watchers had been modeling. The bank attributed the higher margin to stronger shipment volumes, a more favorable product mix, and faster growth in the company's Installed Base Management business—a higher-margin segment that includes services, upgrades, and spare parts for machines already in use at customer factories.
ASML also sounded more confident about its pricing power and described first-half 2026 order intake growth as "extremely strong." The company is expanding capacity for its low numerical aperture extreme ultraviolet (EUV) systems and deep ultraviolet (DUV) tools, both critical for making advanced chips used in everything from smartphones to artificial intelligence data centers.
What this means for ASML investors
For everyday investors, the key takeaway is that ASML's profitability may hinge less on whether it hits the top or bottom of its revenue range, and more on what drives the gross margin. If the company lands closer to 56% than 54%, the extra profit tends to flow through faster than revenue grows—a concept known as operating leverage.
The debate for 2026-2028 will likely focus on three factors: the mix of EUV versus DUV machines sold, how much customers spend upgrading existing equipment, and whether ASML can maintain firm pricing. A margin guide above consensus can support larger changes in valuation models than a similar-sized tweak to the sales outlook, which is why Berenberg's target hike was significant.
ASML's position as a near-monopoly supplier of lithography systems means its fortunes are closely tied to the broader semiconductor cycle. Demand for chips has been volatile in recent years, but the push for AI computing and advanced manufacturing is driving long-term investment. The company's 2026 guidance suggests it expects that trend to continue.
Broader market context
The upgrade comes amid a busy period for tech and semiconductor stocks. In other markets, Indian stocks edged higher as Tech Mahindra's earnings beat lifted the IT sector, while Japan bet $2.4 billion on humanoid robots to regain an AI edge, and energy IPOs surged. Meanwhile, China's CXMT raised $8.6 billion in a mega STAR Market IPO, highlighting strong retail demand for semiconductor plays.
For ASML, the raised target reflects growing confidence that the company can sustain its profitability as it ramps up production of next-generation machines. Investors will now watch for further updates on order trends and margin performance in the coming quarters.
