ASML at €40B Guidance: The Re-Rating the Backlog Already Paid For

ASML raised its full-year 2026 sales guidance to €36–40 billion in April, up from a €34–39 billion range, and the stock has carried that revision to €1,485.20, a 28% advance over three months. The number that matters here is not the price move. It is the €38.8 billion order backlog behind the guidance lift, booked before the AI-capacity scramble of the past two quarters had fully shown up in customer order patterns. The market is paying 57 times trailing earnings for a company whose forward revenue is contracted, not forecast.

FY2025 revenue of €32,667 million converted to €11,290 million of operating income, a 34.59% operating margin, and €11,085 million of free cash flow. On a trailing basis the margin has not slipped under the higher revenue base. It sits at 34.79% on €33,693 million of sales. A lithography franchise that ramps shipment volume while holding margin near 35% is telling you the pricing on each incremental EUV and immersion system is not being competed away. There is no second supplier bidding down high-NA EUV. The customer either takes ASML’s tool at ASML’s price or does not build the leading-edge node at all.

The composition of revenue is where the case tightens. Service revenue ran at roughly 28% of the €8.8 billion Q1 2026 total, about €2.5 billion of installed-base management and field options. That stream does not ramp and depreciate with the order cycle the way system sales do. Every tool shipped into a fab becomes a multi-year service annuity, and the installed base only grows. This is the part of the income statement that compresses the peak-to-trough EPS range a cyclical normally carries. When wafer starts soften, the systems line bins lower, but the service line keeps running because the fabs already built cannot stop maintaining the lithography step. The 4.65% trailing EPS growth understates this, because it spans a period before the guidance revision reset the system-sales trajectory.

China sits at 19% of net system sales in Q1, with management guiding to roughly 20% for the full year. That figure used to be as high as 33%. The structural read here is that the de-risking of the China revenue line has already largely happened. A franchise that re-rated while shedding a third of its single-largest geographic concentration, without a margin dent, is a franchise whose pricing power does not depend on that geography.

The setup that gets missed in cyclical equipment names is the one playing out now in adjacent capital tools. Utilization recovers first, then pricing firms, then gross margin re-rates, and the multiple follows last, lagging the operational turn by a quarter or two. The market habitually treats the lithography supplier as a pure cyclical and prices it on trailing EPS at the wrong point in the cycle, fading the move as a momentum spike. That is the same utilization-to-margin sequence I traced in Applied Materials running at 71% utilization with room left in its re-rating. The error each time is judging the multiple against where earnings sit today rather than where contracted backlog and a tightening supply position will put normalized earnings power across the cycle.

The demand backdrop is doing the work the bull case needs. AI fab build-out has pushed advanced logic and memory customers to accelerate orders against a supply position management describes as constrained for an extended period, with CEO Christophe Fouquet stating in May that the chip market would remain supply-limited as AI demand surges. HBM bit growth is pulling memory makers toward more lithography steps per device, and the design-win cycle for leading-edge logic now runs through tape-outs that physically cannot complete without EUV. Customer inventory days at the leading edge are not the overhang they are at the trailing edge, because the bottleneck is capacity, not digestion. That is the combination that keeps the order book converting rather than cancelling.

What could break this. The clearest threat is regulatory, not operational. The proposed US MATCH Act would extend multilateral curbs on chipmaking-equipment exports and servicing into China, and because servicing is in scope, the risk reaches the high-margin installed-base revenue, not just new DUV shipments. The Dutch government has formally objected to the law’s extraterritorial reach, which signals the fight is live rather than settled. If the legislation passes in a form that strips servicing rights on tools already in Chinese fabs, the 28% service mix that anchors the through-cycle EV/sales argument takes a direct hit, and the annuity logic weakens at exactly the point I am leaning on it. The second pressure is simpler arithmetic: at 57 times trailing earnings, the multiple has front-run the guidance, and EPS growth has to step up from 4.65% toward the high-teens that €40 billion of revenue implies for the price to be doing more than treading water.

That gives a clean test. If full-year 2026 revenue lands below the €36 billion floor of management’s own guidance, or operating margin slips under 33% for two consecutive quarters, the backlog-converts-at-stable-pricing thesis is wrong and the multiple has nothing under it. Short of that, the re-rating is the market catching up to a contracted top line, not running ahead of one.

Figures reflect the most recent available data and may differ slightly from live market prices. · © Mathstock