Shares of ASML are down about 18% over the past year, which honestly has been the case for a lot of other semiconductor stocks and the broader market too. Even though the pullback has been disappointing for me as someone who's been bullish on the name, I actually see this dip as a great buying opportunity. I still believe ASML's leadership in technology, strong secular drivers like AI, HPC, and automotive, and solid demand even in the middle of a rising trade war, make it a long-term winner.ASML's Dip Is a Buying Opportunity in the AI-Driven Chip Boom

ASML Data by GuruFocus

Despite all the noise around tariffs between the U.S. and China, I think ASML's near-monopoly on EUV lithography and the AI boom are what really matterand those are the reasons why its massive order backlog stays intact. After looking through the company's Q1 2025 earnings presentation, I feel even more confident that ASML is set up for aggressive growth ahead, with some margin expansion potential too, which is a big reason why I think investors should stick with it. That being said, I do feel like sentiment around the stock has gotten a lot more negative lately, even though I personally think the actual story has improved. Shares dropped more than 5% after ASML announced Q1 results, mainly because net bookings (3.94 billion) came in lower than the 4.8 billion consensus and tariff fears popped back up again. But honestly, I think the tariff headlines are just noise at this pointASML is already working hard to de-risk its business away from China. And the way I see it, the order miss and cautious tone from management have now set a lower bar for the company going forward, which actually creates a better setup for long-term investors to get in at a cheaper price. In my view, expectations have gotten way too low here.

ASML's Essential Role in the Semiconductor Supply Chain

ASML is absolutely crucial to the global chip supply chain because they produce the specialized lithography machines needed to manufacture advanced semiconductors. In my view, that makes them basically irreplaceable, which is why I think there's a good shot the stock can re-rate to a much higher valuation when sentiment toward the sector improves.

Everyone's scrambling to get Taiwan Semiconductor Manufacturing Company (TSMC) to make their chips, and that's pushing other companies to ramp up spending on lithography systems too, which is great news for ASML. According to Bloomberg, hyper scale companies like Amazon (AMZN) and Alphabet (GOOG) are expected to spend around $371 billion on data centers and computing in 2025, a huge 44% YoY increase. Then in 2026, that figure is supposed to jump another 42% YoY to $525 billion. Since all that AI and data center buildout needs more complex chips, and nobody else can match ASML's EUV technology, I believe this puts them in a really strong spot. I'm pretty confident that as global semiconductor sales pick up, especially fueled by generative AI, ASML's revenue growth will continue right alongside it.

Story Continues

Strong Pricing Power and Margin Expansion

One of the biggest things that stands out to me is ASML's pricing power. If a chip company wants to expand production, they basically have no choice but to buy from ASML, and this has helped ASML keep its margins looking really healthy.

In Q1 2025, ASML's GAAP gross margin improved to 54%, which was a 2.3 percentage point jump from the previous quarter. That's a pretty solid number in my opinion. Even though the operating profit margin dipped by 0.8 percentage points, if you step back and look at the last twelve months, operating margins are up a whopping 9.1%. To me, this clearly shows that they're still in a very strong trend upward. Sure, margins can't expand forever, but based on everything I'm seeing, I think we could still see more improvement for a while longer, especially with strong demand staying in place. Overall, this should act as a good tailwind for profits moving forward.

Trade War Risks Are Overblown, and Demand Remains Strong

Lately, investors have been super focused on ASML's net bookings, which makes sense because bookings give a good forward view of revenue potential. In Q1 2025, ASML's net bookings fell 44% QoQ to 3.9 billion. But honestly, I think this lumpiness is normal when each order can be over $300 million and there are only so many customers out there. Management even pointed out that their massive backlog acts as a cushion, and I fully agree. Plus, YoY, bookings actually rose 9%, and 1.2 billion of that was for their leading EUV systems, which is a very positive sign in my view.

Management reaffirmed their 2025 sales forecast at 3035 billion with gross margins between 5153%. Even though the market didn't love that update because it was a little shy of consensus, I personally think investors are getting too bearish.

The trade war talk doesn't worry me much. ASML has already cut China exposure down from about 50% of sales in 2024 to roughly 20% in 2025, which shows they're managing risk well, and demand in China still looks solid despite the scaling back. Thanks to U.S. export controls like the Foreign Direct Product Rule and EAR, any lithography tool containing U.S.-origin components requires a U.S. license for China salesso ASML must vet its customers and defer to Washington's approval, effectively giving the U.S. veto power over certain orders. By de-risking China, ASML stabilizes its revenue against sudden license delays, avoids overexposure to geopolitical shocks, and positions itself to win duplicate orders from new fabs being built in the U.S., Europe, and elsewhere as regions race to secure their own chip-making capacity. Looking ahead to FY26 and beyond, I'm assuming the tariff noise will fade and demand will normalize. I'm expecting ASML to deliver about 13% revenue growth going forward, which is right around their historical average. When I step back and look at the bigger picture, ASML still looks like a dominant player with sector-leading margins and strong long-term growth potential. That's why I think the market is way too pessimistic right nowand I'm staying bullish.

Valuation Reset

Not too long ago, ASML was trading as high as $1,100 a share. Now it's sitting around $750, which is obviously a big drop from the 52-week highs. While that's tough for anyone who bought near the top, I actually see this reset as a big positive for people getting in today. In my view, ASML's pullback has set up a really attractive opportunity to buy a world-class business at a much better valuation.

Right now, ASML is trading at about 20x its projected 2026 profits. Sure, that's higher than Taiwan Semiconductor's 14.1x or Intel's 16.3x (both also based on 2026e numbers), but I believe ASML deserves the premium because of how strong its profitability and growth prospects are. For context, back in February 2025, ASML was changing hands at 30x forward profits, so we've already seen a pretty big de-rating. Honestly, I think ASML could easily get back to a 30x multiple if it keeps up the margin strength and continues selling more lithography machines for next-gen chip production. Using that 30x multiple, I estimate ASML's intrinsic value around $1,125 per share, which would imply a 50% margin of safety from where it's trading today. Interestingly, the stock was trading at the $900 level last August, so it's not a crazy stretch.

Another thing that really boosts my confidence is the company's recent buyback. ASML repurchased 2.7 billion worth of stock, the biggest buyback in its history. To me, this sends two strong signals: first, management clearly believes the stock is undervalued, and second, it helps put a floor under the stock price. Even more impressive, they're doing this while valuations are near levels we haven't seen since 2016 and let's be honest, ASML is in a way better position today than it was back then.ASML's Dip Is a Buying Opportunity in the AI-Driven Chip Boom

[ASML Investor Presentation]

On top of all that, ASML's forward Non-GAAP PEG ratio is sitting at 1.31, which is 5.93% lower than the sector median of 1.40 and well below its five-year average of 1.79. To me, this just shows that even though ASML isn't exactly cheap on a pure PE basis, it's pretty reasonably priced when you adjust for growth maybe even modestly undervalued.

Guru Holdings

When it comes to the guru holdings of the stock, Steve Mandel (Trades, Portfolio)'s Lone Pine Capital currently holds about 441,800 ASML sharesroughly 0.11% of the company's outstanding stockbut trimmed that position by nearly 20% in Q4 2024, making ASML a 2.27% weight in his overall portfolio. Frank Sands (Trades, Portfolio)'s Asia-focused fund likewise pared back aggressively, selling roughly 61% of its ASML stake (around 6.7 million shares) and now sits at just under 1% of ASML's shares outstanding and 0.96% of his assets. Like Buffett, both Mandel and Sands are net sellersnot necessarily because they've lost confidence in ASML's long-term story, but often due to liquidity needs as they manage redemptions and reallocate capital. In fact, many of these guru portfolios are shrinking faster than the market as they raise cash to meet outflows, so their ASML sales likely reflect broader portfolio dynamics rather than a bearish view on the company.ASML's Dip Is a Buying Opportunity in the AI-Driven Chip Boom

Concluding Thoughts

In my view, ASML's unmatched moat and critical role in the semiconductor supply chain make it one of the strongest players out there. Sure, uncertainty and tariff headlines can shake the market, but the companies with the best technology and pricing power not only survivethey come out stronger with less competition. I believe the ongoing AI and chip spending boom, combined with a global push to build more fabs, will keep demand for ASML's EUV systems robust for years to come. Management's proactive steps to de-risk China exposure give me confidence they can navigate geopolitical headwinds. At roughly 20x 2026e profitswell below its recent highsASML looks reasonably valued to me, especially given its growth and margin upside. Unless the fundamentals of chipmaking themselves change, I see no reason to alter my stance: ASML remains a Buy.

This article first appeared on GuruFocus.

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