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ASML Q3 Earnings Beat on Strong Upgrade Demand, Revenues Miss
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Key Takeaways
ASML's Q3 earnings surged 135.9% and beat estimates by 3.69%, while revenues missed forecasts by 11.49%.
Installed Base Management revenues jumped 67.6%, while gross margin expanded 590 basis points to 57.5%.
ASML targets 36% revenue growth in 2026 and plans a 30% manufacturing capacity expansion in 2027.
ASML Holding N.V. (ASML - Free Report) reported third-quarter 2026 earnings of $12.93 per share, beating the Zacks Consensus Estimate of $12.47 by 3.69%. Earnings increased 135.9% year over year. Revenues of $11.66 billion missed the Zacks Consensus Estimate of $13.18 billion by 11.49% but increased 55.2% year over year.
The performance benefited from a strong demand for lithography systems and productivity upgrades, supported by accelerating artificial intelligence (AI) investments. Installed Base Management revenues surged 67.6% year over year, while gross margin expanded significantly on favorable sales mix and higher volumes.
ASML Holding N.V. Price, Consensus and EPS Surprise
Net system sales increased 50.8% year over year and 27.5% sequentially. The company sold 121 lithography systems during the quarter compared with 72 in the year-ago period and 91 in the preceding quarter.
Installed Base Management revenues increased 67.6% year over year and 19.1% sequentially. The business benefited from strong customer demand for productivity upgrades, which enable chipmakers to increase manufacturing capacity using existing equipment.
Management highlighted that Installed Base Management revenues exceeded its guidance by approximately 13.8%. The stronger-than-expected performance reflected customers' urgency to expand production capacity amid increasing demand for advanced semiconductor technologies.
Broad-Based Lithography Growth
Extreme ultraviolet (EUV) systems accounted for 46% of third-quarter net system sales, while ArFi immersion systems contributed 36%. KrF, ArF dry and metrology and inspection equipment accounted for the remaining revenues.
The company sold 17 EUV systems, compared with 16 in the preceding quarter. ArFi system sales increased to 40 units from 23 sequentially, reflecting stronger demand for immersion lithography equipment.
Logic applications represented 54% of net system sales, while memory accounted for 46%. Geographically, Taiwan contributed 32% of system revenues, followed by South Korea at 31% and China at 23%. The United States accounted for 13%, with the rest of Asia contributing 1%.
Profitability Improves on Favorable Product Mix
Gross profit increased 72.7% year over year, supported by stronger system sales and productivity upgrades. Gross margin expanded 590 basis points to 57.5% from 51.6% in the prior-year quarter. Sequentially, gross margin improved 350 basis points.
Research and development expenses increased 5.9% year over year, while selling, general and administrative expenses rose 16.3%. Despite higher operating expenses, operating income surged 109.6% year over year. Operating margin expanded to 44.4% from 32.8%.
Net income increased 133.5% year over year. The result included a gain on equity investments related primarily to the revaluation of ASML's initial investment in Mistral AI. Net profit margin expanded to 42.5% from 28.3% a year earlier.
Cash Flow and Liquidity Strengthen
Operating cash flow improved significantly during the quarter, supported by favorable changes in assets and liabilities. Free cash flow also increased substantially from the year-ago period, reflecting stronger cash generation despite higher capital expenditures.
Cash and cash equivalents increased 20.4% sequentially, while total cash, cash equivalents and short-term investments rose 68.0%. Inventories increased 1.4% from the second quarter, reflecting continued investment in manufacturing operations.
ASML repurchased approximately 2.8 million shares during the third quarter under its existing 2026-2028 share repurchase program. The company also announced a second interim dividend for 2026, payable Nov. 4, 2026.
Fourth-Quarter and Full-Year Outlook
For the fourth quarter of 2026, ASML expects continued revenue growth, supported by strong semiconductor equipment demand and higher Installed Base Management sales. Gross margin is projected at approximately 57%, reflecting a favorable business mix and increasing upgrade activity.
For full-year 2026, management expects revenues to increase approximately 36% year over year, with gross margin around 56%. EUV revenues are expected to increase more than 45%, while non-EUV revenues are projected to grow approximately 20%. Installed Base Management revenues are anticipated to rise around 50%.
Management also expects China to account for approximately 20% of total revenues for 2026. Higher equipment volumes, favorable product mix and growing demand for upgrades remain important contributors to the company's profitability outlook.
ASML Accelerates Capacity Expansion Plans
Management highlighted strengthening demand for semiconductor manufacturing equipment as customers expand capacity to support AI-related investments. Customers anticipate that semiconductor supply constraints could persist through at least 2028, with some expressing interest in placing orders for 2029 and 2030.
ASML expects to ship approximately 65 EUV systems in 2026, representing an increase of more than 50% year over year. The company plans to expand low-NA EUV and immersion manufacturing capacity by 30% in 2027 and is evaluating additional expansion beyond its previously planned 30% increase for 2028.
Technology developments remain central to these efforts. The upcoming NXE:3800F system is expected to increase throughput to 260 wafers per hour from 230. Next-generation immersion systems are expected to deliver 330 wafers per hour, while the YieldStar 550B metrology platform offers more than 60% higher productivity, supporting advanced logic and memory manufacturing.
Arista Networks Inc. (ANET - Free Report) is scheduled to release third-quarter 2026 earnings on Nov. 3. The Zacks Consensus Estimate for earnings is pegged at $1.08 per share, suggesting a growth of 44% from the year-ago reported figure.
Arista has a long-term earnings growth expectation of 22.8%. Arista delivered an average earnings surprise of 8.9% in the last four reported quarters.
Akamai Technologies, Inc. (AKAM - Free Report) is slated to release third-quarter 2026 earnings on Nov. 5. The Zacks Consensus Estimate for earnings is pegged at $1.67 per share, indicating an 10.2% decline from the year-ago reported figure.
Akamai has a long-term earnings growth expectation of 5.9%. Akamai delivered an average earnings surprise of 4.8% in the last four reported quarters.
GLOBALFOUNDRIES Inc. (GFS - Free Report) is set to release third-quarter 2026 earnings on Nov. 4. The Zacks Consensus Estimate for earnings is pegged at 51 cents per share, implying a rise of 24.4% from the year-ago reported figure.
GLOBALFOUNDRIES has a long-term earnings growth expectation of 21.2%. GFS delivered an average earnings surprise of 10.9% in the last four reported quarters.
View the Zacks #1 Rank List
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ASML Q3 Earnings Beat on Strong Upgrade Demand, Revenues Miss
Key Takeaways
ASML Holding N.V. (ASML - Free Report) reported third-quarter 2026 earnings of $12.93 per share, beating the Zacks Consensus Estimate of $12.47 by 3.69%. Earnings increased 135.9% year over year. Revenues of $11.66 billion missed the Zacks Consensus Estimate of $13.18 billion by 11.49% but increased 55.2% year over year.
The performance benefited from a strong demand for lithography systems and productivity upgrades, supported by accelerating artificial intelligence (AI) investments. Installed Base Management revenues surged 67.6% year over year, while gross margin expanded significantly on favorable sales mix and higher volumes.
ASML Holding N.V. Price, Consensus and EPS Surprise
ASML Holding N.V. price-consensus-eps-surprise-chart | ASML Holding N.V. Quote
System Sales Rise on Strong Customer Demand
Net system sales increased 50.8% year over year and 27.5% sequentially. The company sold 121 lithography systems during the quarter compared with 72 in the year-ago period and 91 in the preceding quarter.
Installed Base Management revenues increased 67.6% year over year and 19.1% sequentially. The business benefited from strong customer demand for productivity upgrades, which enable chipmakers to increase manufacturing capacity using existing equipment.
Management highlighted that Installed Base Management revenues exceeded its guidance by approximately 13.8%. The stronger-than-expected performance reflected customers' urgency to expand production capacity amid increasing demand for advanced semiconductor technologies.
Broad-Based Lithography Growth
Extreme ultraviolet (EUV) systems accounted for 46% of third-quarter net system sales, while ArFi immersion systems contributed 36%. KrF, ArF dry and metrology and inspection equipment accounted for the remaining revenues.
The company sold 17 EUV systems, compared with 16 in the preceding quarter. ArFi system sales increased to 40 units from 23 sequentially, reflecting stronger demand for immersion lithography equipment.
Logic applications represented 54% of net system sales, while memory accounted for 46%. Geographically, Taiwan contributed 32% of system revenues, followed by South Korea at 31% and China at 23%. The United States accounted for 13%, with the rest of Asia contributing 1%.
Profitability Improves on Favorable Product Mix
Gross profit increased 72.7% year over year, supported by stronger system sales and productivity upgrades. Gross margin expanded 590 basis points to 57.5% from 51.6% in the prior-year quarter. Sequentially, gross margin improved 350 basis points.
Research and development expenses increased 5.9% year over year, while selling, general and administrative expenses rose 16.3%. Despite higher operating expenses, operating income surged 109.6% year over year. Operating margin expanded to 44.4% from 32.8%.
Net income increased 133.5% year over year. The result included a gain on equity investments related primarily to the revaluation of ASML's initial investment in Mistral AI. Net profit margin expanded to 42.5% from 28.3% a year earlier.
Cash Flow and Liquidity Strengthen
Operating cash flow improved significantly during the quarter, supported by favorable changes in assets and liabilities. Free cash flow also increased substantially from the year-ago period, reflecting stronger cash generation despite higher capital expenditures.
Cash and cash equivalents increased 20.4% sequentially, while total cash, cash equivalents and short-term investments rose 68.0%. Inventories increased 1.4% from the second quarter, reflecting continued investment in manufacturing operations.
ASML repurchased approximately 2.8 million shares during the third quarter under its existing 2026-2028 share repurchase program. The company also announced a second interim dividend for 2026, payable Nov. 4, 2026.
Fourth-Quarter and Full-Year Outlook
For the fourth quarter of 2026, ASML expects continued revenue growth, supported by strong semiconductor equipment demand and higher Installed Base Management sales. Gross margin is projected at approximately 57%, reflecting a favorable business mix and increasing upgrade activity.
For full-year 2026, management expects revenues to increase approximately 36% year over year, with gross margin around 56%. EUV revenues are expected to increase more than 45%, while non-EUV revenues are projected to grow approximately 20%. Installed Base Management revenues are anticipated to rise around 50%.
Management also expects China to account for approximately 20% of total revenues for 2026. Higher equipment volumes, favorable product mix and growing demand for upgrades remain important contributors to the company's profitability outlook.
ASML Accelerates Capacity Expansion Plans
Management highlighted strengthening demand for semiconductor manufacturing equipment as customers expand capacity to support AI-related investments. Customers anticipate that semiconductor supply constraints could persist through at least 2028, with some expressing interest in placing orders for 2029 and 2030.
ASML expects to ship approximately 65 EUV systems in 2026, representing an increase of more than 50% year over year. The company plans to expand low-NA EUV and immersion manufacturing capacity by 30% in 2027 and is evaluating additional expansion beyond its previously planned 30% increase for 2028.
Technology developments remain central to these efforts. The upcoming NXE:3800F system is expected to increase throughput to 260 wafers per hour from 230. Next-generation immersion systems are expected to deliver 330 wafers per hour, while the YieldStar 550B metrology platform offers more than 60% higher productivity, supporting advanced logic and memory manufacturing.
Zacks Rank
ASML currently has a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Upcoming Releases
Arista Networks Inc. (ANET - Free Report) is scheduled to release third-quarter 2026 earnings on Nov. 3. The Zacks Consensus Estimate for earnings is pegged at $1.08 per share, suggesting a growth of 44% from the year-ago reported figure.
Arista has a long-term earnings growth expectation of 22.8%. Arista delivered an average earnings surprise of 8.9% in the last four reported quarters.
Akamai Technologies, Inc. (AKAM - Free Report) is slated to release third-quarter 2026 earnings on Nov. 5. The Zacks Consensus Estimate for earnings is pegged at $1.67 per share, indicating an 10.2% decline from the year-ago reported figure.
Akamai has a long-term earnings growth expectation of 5.9%. Akamai delivered an average earnings surprise of 4.8% in the last four reported quarters.
GLOBALFOUNDRIES Inc. (GFS - Free Report) is set to release third-quarter 2026 earnings on Nov. 4. The Zacks Consensus Estimate for earnings is pegged at 51 cents per share, implying a rise of 24.4% from the year-ago reported figure.
GLOBALFOUNDRIES has a long-term earnings growth expectation of 21.2%. GFS delivered an average earnings surprise of 10.9% in the last four reported quarters.