ASML Stock is STILL Undervalued? (ASML Stock Analysis!)

ASML is one of the biggest winners in my personal portfolio over the last year. I added pretty heavily to this stock last year in 2025, and you can see right now I'm up about 157% on this position. It's really what's driven a lot of the growth in my personal portfolio as of late. But what's really interesting about this is despite being up over 127% in the last year, take a close look at the valuation for this stock. It's currently trading at a 29.24 24p multiple, which is actually below its 5-year average. It's actually still below its three-year average. So, relative to how the company has historically traded, it's actually trading at a discount despite climbing over 100% in the last year. Now, how is something like this actually possible? Well, of course, this is only possible when a stock is rapidly growing earnings. And when you look at a stock like ASML, you'll see that's been exactly the case. Take a look at the stock screener. Back in 2020, this was a stock producing $7.91 in earnings per share. Now, it's sitting at almost 25. So, EPS has more than tripled over the last 5 years. That's the type of earnings growth that allows a stock to double and still be trading at a discount relative to how it's historically traded. Now, that being said, we still have a lot to talk about in today's video. Is ASML stock an interesting company trading at $1,700 a share? We also need to answer the question, is it worth the premium valuation? And we definitely need to answer the question, does China pose a threat to ASML's monopoly? And to analyze ASML, we're going to be using the ticker data add-on in Google Sheets, which is also now available in Excel. This is a huge update. You can automatically import over 30 years worth of stock financials directly into your spreadsheet. And ticker data is an international investor's best friend. We have access to over 63 different stock exchanges. 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Whether you want historic or live data, whether you want income statement, balance sheet, cash flows, ratio, key metric, growth metrics, dividends, or even analyst estimates, it's all here in one place to make your life as easy as possible. The value of ticker data is continuing to compound. And to celebrate the release of these new features, you can currently get 30% off the yearly plans by using code heat at checkout. H EAT. So check out tickerdata.com at the link in the description. So let's talk about ASML. Now, as we've already seen, the reason that their valuation looks interesting at current prices at first glance is because earnings have grown at a much faster rate overall over the last 5 years than the share price. Anytime you have a share price growing around 99% over the last 5 years, meanwhile, earnings have more than tripled, it means the PE multiple is going to look significantly more attractive. And that's exactly what's happened, at least on a forwardlooking basis. Now, the lower valuation multiple could be justified based on two things. Number one, are they projected to grow earnings at a much slower rate in the future? Or number two, are they losing their competitive advantage? Are they losing their moat? Now, if you aren't familiar with ASML, what essentially is the remote? Well, you have to understand the AI ecosystem. The image that we're looking at here essentially maps the semiconductor ecosystem and shows exactly where ASML fits. What it does is it supplies the manufacturing equipment that makes advanced chips possible. But really, it goes significantly deeper than just that. ASML actually occupies one of the most important bottlenecks in the entire chain. It's EUV lithography systems. These systems are considered the world's most complex machines, the most complex machines on Earth. ASML is the world's only commercial supplier of EUV lithography systems, which are essential for manufacturing many of the most advanced chips. So, what does this mean? Yes, it means they're monopoly, but it means a lot more than that. Basically, over the last few years, the main headline we continue to see out of tech is that big tech's AI bet is getting heftier, meaning they continue to spend more and more on capex to build out their AI capabilities. So, yes, we could and we have analyzed most of these stocks, whether it's Amazon, Meta, Microsoft, or Google, and look at their capital expenditures over the last few years, which continue to surge higher and higher. But whenever I see a chart like this, the first thing I think about is ASML. It's not Microsoft, which is also a large holding of my portfolio. It's not Google. It's not Meta, and it's not Amazon. It's ASML. Why is that the case? Well, because while we could take a deep dive into each of these companies, analyze what their capex spending actually looks like, the reality is I also know all of this capex spending eventually flows back into one company, and that's ASML. Why is that the case? Well, it's because they are the bottleneck. They are the sole suppliers of the EUV lithography technology. So, as the capex spending continues to increase, we see this flowing directly into ASML's bottom lines. And not just that, if we jump over to the profitability sheet, yes, the revenue growth has continued to go higher, but look at the profit margins as well. The profit margins for this company continue to expand, going from around 46% in 2015 all the way up to about 52.8%. Now, we need to pause this for a moment and ask ourselves, why is this the case? Why have they been able to expand their margins? Well, it's actually due to an element of their business that a lot of people when they analyze ASML miss, and it's a portion of their business that's a lot larger than a lot of people realize as well. What am I talking about? Well, we're talking about the net service and field option portion of the business. This is a business segment that essentially is recurring revenue-like. It's almost like a subscription model. And we can see from 2024 to 2025, that's the portion of the business that grew by over 26% year-over-year. Now, what actually is this? Well, this is essentially the revenue that's coming from ASML servicing and upgrading its installed base. So, what does that mean? Well, basically every time that ASML is selling these lithography systems, it also means they're going to have to continue for years down the line service those systems. So, they aren't just making the sale up front. It's almost like they're adding a subscription layer of revenue to their business. And so, as this portion of the business continues to grow, it continues to boost those gross profit margins. So, not only do they have a monopoly, not only are they at the top of the semiconductor ecosystem, but they're continuing to add a growing layer of recurring revenue. And personally, a little side note, as a dividend growth investor, I love recurring revenue. Why is that the case? Well, because recurring revenue means more predictable cash flows, which means management is more likely to grow dividends at a strong rate over time. And that's exactly what ASML has historically done. 5-year dividend cagger of nearly 18%. They've grown dividends substantially over the last decade and management has stated they're going to continue to raise the dividend over time. Now keep in mind this is not an American stock. It's a European stock. So a lot of the times the dividend policy will look a little bit differently. Sometimes European stocks pay dividends semiannually and they typically don't grow dividends at an annual basis like US stocks typically do. So that is something to keep in mind. Now we'll come back and talk more about the valuation here in a moment. But we also need to address the headlines we've recently seen. unnamed Chinese company begins developing advanced chipm machine which led to ASML stock dropping. Now, if you've been watching ASML really over the last two to three years, this is a headline we've seen recycled multiple times now. And every time it recycles, ASML stock sees a little bit of a drop in the day. I'm going to hit you with some reality right now. Just a day after that article was released, Bank of America called it an overreaction. And just a few days ago, a UBS analyst who's been researching this subject for quite some time now stated that China's DUV technology is at a similar stage to ASML in 2004. 2004, that's two decades ago. And to be honest, I absolutely believe this. This is the sentiment we've seen over the last couple of years. ASML has been heavily reinvesting back into the business. They've been pouring capital into research and development, which has given them a huge lead over the years. Not only has that research and development given them a huge lead, made them a monopoly, but there's something else that a lot of people seem to miss. On page 307 of their 2025 annual report, it looks like a bunch of boring information, something that a lot of people would skip over. But if we come down here, we can see what their year-end taxes actually look like. The income tax expense based on ASML's domestic rate was 25.8%. So 25.8%. But because much of ASML's profit comes from proprietary technology developed through research and development, it qualifies for what is known as the Netherlands innovation box. In 2025, that tax incentive reduced ASML's tax expense by more than 1.1 billion. So this brought down its effective tax rate to roughly just 18%. So that's some incredible tax savings right there. Another huge advantage for ASML. The reality is they really don't have any control over this advantage, but it's something they're definitely taking advantage of. But regardless of what happens in this instance, they are well ahead of really what we would call their peers, but in reality, they don't have any peers at all. So, they're at the very top of the food chain. All of the capex spending eventually flows back to them. They're a monopoly that continues to add a recurring level of revenue to the business. And so you can see all of a sudden last year when sentiment was extremely low around the stock, the PE multiple got as low as around 22 times earnings. And this is for a stock that is projected and has been growing earnings at a very high rate. Keep that in mind. Look at ASML. If we come over here, we can see the historical data has loaded in. They've compounded their EPS since 2017 at about 23.3% annually. So again, just absolutely substantial growth since 2017. But what's crazy is they're projected to grow earnings at an even faster rate through the year 2030. The projected EPS kagger is 27.5%. So take that in for just a moment. When looking at this PE multiple, the PE multiple has dropped considerably, roughly sitting at about 30 when looking at normalized price to earnings over the next 12 months, despite the fact that earnings are expected to grow at an even faster rate than they have been historically speaking. So you can do the math. That makes things quite interesting. So, let's just assume that they do grow earnings at that 27, maybe even a little bit lower, 25% range, and the trailing 12-month PE multiple, not the Ford PE multiple, trailing 12-month, which is sitting at 53.2 drops a little bit, maybe down to around 40. You can still see 2029, 2030, 2031 forward-looking returns look extremely attractive. And keep in mind, a trailing 12-month PE multiple of 40 would mean the forward PE multiple is substantially lower. For reference, right now, the trailing 12-month PE multiple is at 51.6, while the forward-looking is just 29.2. So, on a forward-looking earnings basis, this would still be an incredibly low PE multiple for the stock. Obviously, assuming they continue to grow earnings at a high rate. Now, there is some cyclicality in the industry that they're in. There's no doubt about that. But they're going to continue to hold their moat. They're decades ahead of what some people would call their peers. And on top of all this, when you look at the guidance they gave us, yes, revenues and earnings are continuing to grow, but the gross margin is now expected to be between 54 and 56% in 2026, which again for reference means margins are continuing to expand even relative to where they were in 2025. So, you can see why this is such an attractive business model. You can see why I found it so attractive in 2025, trading around $600, $700 a share. And while I did add a good amount of capital to it, the reality is as I saw it ticking higher to the $1,400, $1,500 range, I felt like it wasn't such a great opportunity anymore. But as I continue to research this stock, dive deeper into earnings growth projections, look at the company's moat, I realize even trading at these prices, it's not just an absolutely ridiculous valuation. I can see it making sense at these prices still. We haven't seen any sign of these big tech stocks slowing down their capex spending. In fact, it's been the complete opposite. they continue to increase their forecast. And so while I continue to expect incredible volatility from ASML, it's been incredibly volatile ever since I've held the stock. I do think over the next 5 to 10 years, people who buy at this price will probably be quite happy that they did. So, I'm heavily considering adding more ASML to my portfolio at this time along with Broadcom. But again, go ahead and let me know what you think of ASML in the comments down below. And again, be sure to take advantage of all the new features that were just released on Ticker Data by using code heat at checkout. It'll get you access to the discount and also a 7-day free trial. So, you can check out ticker data in Google Sheets. Ticker data in Excel. And we also want to get your feedback. So, if you go to tickerdata.com, you can tell us and the team exactly what type of sheets you're trying to make, what you're trying to research, and really the purpose of what you're building it for, so we can continue to optimize ticker data to fit your exact needs. So again, link in the description.