ASML (ASML) Q2 2025: EUV Capacity Up 30%, But Tariff Uncertainty Clouds 2026 Growth Visibility
ASML delivered Q2 results at the upper end of guidance, propelled by a 30% increase in EUV capacity and robust China demand, but management flagged intensifying tariff and macro uncertainty as a drag on 2026 visibility. Productivity gains in the NXE3800E platform and strong upgrade activity lifted margins, yet customer caution around geopolitical risks is delaying capital decisions. Investors should watch for order momentum and clarity on tariffs as key swing factors for next year’s trajectory.
Summary
- Tariff Uncertainty Delays Customer Decisions: Management cited rising caution among customers, especially on large US investments.
- EUV Productivity Gains Offset Lower Unit Shipments: Fewer tools shipped, but higher throughput and ASPs supported revenue and margin.
- China Demand Surpassed Expectations: Revenue share from China rose above 25%, now better aligned with backlog composition.
Performance Analysis
ASML’s Q2 net sales reached the upper end of guidance, underpinned by strong EUV, extreme ultraviolet lithography, demand and a notable contribution from upgrade services. System sales were split 69% logic and 31% memory, with logic strength reflecting AI-driven capacity expansion at leading-edge nodes. Non-EUV sales and install-based management, the recurring revenue from servicing and upgrading installed tools, both came in above expectations. Gross margin exceeded guidance at 53.7%, aided by a high mix of upgrades, one-off cost benefits, and minimal tariff impact, though partially offset by the margin-dilutive effect of high NA, numerical aperture, system revenue.
Bookings were healthy at €5.5 billion, with logic comprising 84% and memory 16%, and the backlog stood at €33 billion after a €1.4 billion China-related order adjustment. China’s revenue share continued to outpace prior expectations, now exceeding 25% of total sales. Shareholder returns were robust, with €1.4 billion in buybacks and a €1.60 interim dividend announced for Q3.
- Upgrade Revenue Outpaces Expectations: Productivity upgrades to the NXE3800E fleet drove higher-than-anticipated service sales and margin upside.
- China Mix Shift: DPV, deep ultraviolet, sales to China increased, reflecting resilient demand despite regulatory scrutiny.
- Backlog Adjustment Signals Export Risk: The €1.4 billion backlog reduction, mostly DPV, reflects customer adaptation to export restrictions.
While the financial picture remains strong, management emphasized that second-half gross margins will decline due to mix shift, fewer upgrades, and absence of first-half one-offs.
Executive Commentary
"Artificial intelligence is the key driver of growth in memory and logic at this point...customers continue to add capacity on the leading edge to support AI demand, in which EUV plays an increased role."
Christophe Fouquet, Chief Executive Officer
"We are currently facing an increasing level of uncertainty surrounding macroeconomic and geopolitical developments, which may have both direct and indirect implications for our business."
Roger Dassault, Chief Financial Officer
Strategic Positioning
1. EUV Platform Productivity and Pricing Power
The NXE3800E, ASML’s flagship EUV system, now ships at full 220 wafers per hour, enabling customers to meet capacity needs with fewer units but at higher average selling prices and margins. This shift means revenue is less dependent on unit volume and more on value delivered per tool, a dynamic reinforced by management’s “value-based pricing” approach. Field upgrades for previously shipped tools further boost recurring upgrade revenue and deepen customer lock-in.
2. China Demand and Geopolitical Navigation
China’s revenue share expanded to over 25%, as demand for DPV and application tools remained resilient despite ongoing export restrictions. The Q2 backlog adjustment reflected customers recalibrating orders post-restrictions, but management stressed there is no evidence of unsustainable demand pull-forward. The team views recent relaxation of certain US export bans as a positive for the broader ecosystem, but not a material near-term volume lever.
3. High NA EUV and Platform Roadmap
ASML is progressing on high NA EUV (INA platform), with the first EXE5200B system shipped and installed for customer qualification. The roadmap targets high-volume manufacturing insertion in 2026-2027, with milestones focused on tool maturity and reliability in production. Management reiterated that increasing lithography intensity, especially in DRAM and advanced logic, underpins long-term demand for both low and high NA EUV.
4. Installed Base Management as a Growth Engine
Strong upgrade activity and a growing installed base are driving double-digit growth in service and upgrade revenue, expected to rise more than 20% in 2025. As more EUV tools exit warranty, recurring service revenue will become an even more material profit contributor, providing resilience against cyclical swings in new system sales.
5. Tariff and Macro Uncertainty as a Strategic Overhang
Management highlighted tariff risk as the primary source of customer caution, particularly for US-based expansion. The lack of clarity on both direct and indirect tariff impacts is leading customers to delay or question capital commitments, compressing ASML’s near-term visibility despite strong end-market fundamentals.
Key Considerations
ASML’s Q2 results showcase the company’s ability to monetize technology leadership and recurring services, but the external environment is increasingly volatile. The following factors are critical for investors monitoring the evolving thesis:
Key Considerations:
- AI-Driven Lithography Demand: Sustained growth in AI workloads is accelerating node transitions and EUV layer adoption in both logic and memory.
- China’s Share of Sales and Backlog: The alignment of China’s revenue share with its backlog percentage reduces risk of future pull-forward, but export controls remain a wildcard.
- Upgrade and Service Revenue Mix: Upgrades to higher throughput configurations are shifting revenue from new systems to services, supporting margins but complicating YoY comparisons.
- Order Book Lumps and Visibility: Bookings remain lumpy and are not a leading indicator for annual growth, as management repeatedly emphasized.
- Gross Margin Headwinds in H2: The mix shift to more high NA tools and fewer upgrades, plus the absence of one-off cost benefits, will pressure margins in the second half.
Risks
Escalating tariff and export control risks pose the most material challenge, with management warning that both direct cost and indirect demand impacts could disrupt customer investment plans and compress future bookings. Macro volatility, especially around US-China relations, and the timing of customer capital decisions introduce significant uncertainty for 2026 and beyond. Any further regulatory tightening or abrupt shifts in customer sentiment could quickly impact ASML’s order book and margin profile.
Forward Outlook
For Q3 2025, ASML guided to:
- Total net sales between €7.4 billion and €7.9 billion
- Install base management sales of around €2 billion
- Gross margin between 50% and 52%
For full-year 2025, management maintained guidance:
- Revenue growth around 15%
- Gross margin around 52%
Management highlighted:
- Second-half demand and margins will be lower due to mix shift and fewer upgrades
- 2026 outlook remains unconfirmed, with growth possible but not yet visible due to customer caution on tariffs and macro environment
Takeaways
ASML’s Q2 results reinforce its central role in enabling advanced semiconductor production, but the company is now as exposed to geopolitics as it is to technology cycles.
- Margin and Recurring Revenue Strength: Productivity upgrades and service growth offset lower tool shipments and support margin resilience.
- Tariff Risk Dominates 2026 Visibility: Customer investment decisions are increasingly delayed or questioned due to macro and policy uncertainty, compressing forward visibility.
- Order Momentum and Tariff Clarity Are Key Swing Factors: Investors should focus on Q3 bookings and regulatory developments as primary drivers for 2026 growth potential.
Conclusion
ASML’s technology and service model continue to deliver strong financials, but the company’s outlook is increasingly hostage to tariff and macro developments. Investors should remain vigilant for signs of order volatility and policy shifts as the primary drivers of near-term valuation.
Industry Read-Through
ASML’s results signal that AI-driven demand is pulling forward advanced node investment across logic and memory, with EUV adoption rising in both segments. The shift to higher productivity tools and recurring upgrade revenue is likely to become a broader industry norm, favoring equipment makers with deep field service capabilities. However, the caution around tariffs and export controls is not unique to ASML: all semiconductor capital equipment vendors face similar risks to order timing and margin structure. Investors should expect continued volatility in bookings and capital allocation across the sector as geopolitical and macro forces play out.