Dutch semiconductor company ASML Holding NV (ASML) is betting on artificial intelligence (AI) tailwinds in the face of geopolitical risks like tariffs. After beating revenue and EPS estimates in the first quarter of 2025, the company pounded its chest and reiterated its full-year 2025 revenue guidance of between €30 billion and €35 billion.
However, it subtly signaled towards the lower end of its full-year revenue guidance should geopolitical headwinds blow. Moreover, an underwhelming net bookings in Q1 suggests a slowdown in revenue is on the horizon. These concerns caused some pressure on ASML stock.
ASML’s macroeconomic vulnerabilities make me cautiously neutral on the stock, despite the furore about chip shortages, bottlenecks, and ASML’s unchallenged status as a chip-making monopolist.
ASML’s Critical Technology Explained
For those who aren’t aware, ASML specializes in photolithography systems, like Extreme Ultraviolet (EUV) lithography, which are necessary to fabricate the advanced integrated circuits that make up the chips designed by companies like Nvidia (NVDA). This technology is incredibly complicated and is difficult to replicate at scale, granting ASML a monopoly in EUV. Advanced AI systems require significant computational capabilities that can only be delivered by increasingly dense and efficient semiconductors. This makes ASML an evidently critical AI bellwether, barometer, and front-runner rolled into one.
Because its products are critical and not easily reproduced, ASML’s financial performance has been stellar. Over the past few years, it has experienced strong revenue growth and steady margin improvements.
ASML’s Tariff Vulnerability
However, operating globally is a double-edged sword. Like most technology-focused companies, ASML must deal with geopolitical risks like tariffs. Tariffs would impact ASML’s business in different ways. For starters, the company ships its lithography systems into the U.S. Moreover, ASML also maintains and upgrades installed systems.
Levies on components and tools would increase operational costs for supporting installed machines. While the company has a manufacturing presence in the U.S., it imports materials and components. Lastly, ASML parts are shipped several times between the continents. So, in the context of retaliatory tariffs, its parts could be tariffed multiple times.
ASML’s Tariff Strategy
It stands to reason that the company in charge of a bottleneck would plan ahead. However, input-cost inflation seems unavoidable. ASML is likely to pass most of its tariff-induced costs onto its customers. This essentially transfers the burden to Intel (INTC), TSMC (TSM), Nvidia, Samsung (SSNLF), and other chip manufacturers/users down the chain. Given the supply bottleneck, there are no cheaper substitutes.
Notably, the company highlighted its U.S. presence, which accounts for 20% of its workforce. While semiconductor products were recently exempted from the reciprocal tariffs, this is widely anticipated to be temporary. The Trump administration is gung-ho about looking at the “whole electronics supply chain.”
Some hope that chip manufacturing tools may slip through the cracks of President Trump’s policy, but statements like that remove any ambiguity (semiconductors versus chip manufacturing tools). Besides, these uncertainties are already affecting ASML’s business outlook.
Warning Signs in Recent Performance
Net bookings, i.e., the total value of customer orders in Q1 2025, were €3.9 billion—considerably short of analysts’ expectations of €4.89 billion. Net bookings are considered a leading indicator of future business health. The unexpected drop may signal that chip makers are cautious about future investments. This figure fluctuates dramatically from quarter to quarter, so it’s too early to read too much into it.
However, if the trend continues in Q2, it portrays the obvious: chipmakers are stepping on the brakes in light of economic uncertainty and geopolitical concerns. The situation is so unusual and fluid that ASML admittedly doesn’t know how to quantify the impact of recent tariff announcements threatening to upend the semiconductor industry. In this light, ASML maintaining its full-year guidance could be viewed as an admission of uncertainty instead of confidence.
Is ASML a Buy, Sell, or Hold?
On Wall Street, ASML has a Strong Buy consensus rating based on six Buy, two Hold, and zero Sell ratings over the past three months. ASML’s average price target of $942.79 implies a 47% upside potential over the next twelve months.
Recently, analyst Ling Lee Keng of DBS rated ASML a Buy, noting its “strong financial performance, strategic positioning, and technological advancements despite potential geopolitical risks and supply chain disruptions.” Overall, the sentiment on Wall Street seems cautiously optimistic given the chip giant’s unchallenged leadership, affording it flexibility when navigating geopolitical risks. No one would dare kill the golden goose laying all the golden eggs.
AI Future Built on Transistors, Semiconductors, and Microchips
While ASML is very important to the future of AI, it is also very vulnerable to tariffs. Should the Trump administration live up to its words and boost tariffs further, its full-year 2025 revenue guidance may appear overly optimistic in hindsight. Granted, no one else can make an EUV machine like ASML, so its customers have little choice but to carry the costs.
However, this could begin to impact demand for ASML products and services, as evidenced by Q1 net bookings falling well short of expectations. For investors, ASML is a good company, but the timing may be off. It may be wise to wait and see what will happen with tariffs before pulling the trigger on its stock. While the long-term AI trend remains very much intact, with ASML a key beneficiary, the short-term outlook could quickly turn for the worse. This makes me cautiously neutral on ASML.