ASML Q2 2026 Earnings: Strong AI-Driven Demand Lifts Full-Year Outlook and Capacity Plans

ASML’s second-quarter results came in above its own guidance, led by stronger-than-expected Installed Base Management sales and a favorable high-margin upgrade mix. More importantly, management raised its 2026 revenue outlook to €43B-€45B as advanced logic and DRAM customers accelerate capacity additions for AI-related demand.

The central development is not simply a strong Q2. ASML now sees demand visibility extending into 2027 and 2028, with Low-NA EUV orders for 2027 nearly fully covered and further capacity expansions under review. That improves medium-term visibility, although the pace of customer orders, supply-chain execution and High-NA EUV’s production maturity remain important variables.

As Reported on the Call

The Bigger Story

ASML’s raised outlook reflects a broader increase in customers’ capital-spending plans rather than a one-quarter shipment timing benefit. Management said leading-edge logic and DRAM customers are adding capacity aggressively as AI demand drives investment in advanced nodes, including 3 nm, 2 nm and future 1.4 nm logic processes, as well as advanced DRAM.

The company is responding by increasing output within its existing manufacturing footprint and working with suppliers to raise throughput. Management plans to increase Low-NA EUV capacity by about 30% in 2027, to an implied roughly 85 tools, while investigating another 30% increase for 2028. It is also planning a 30% increase in immersion-system capacity in 2027 and evaluating a further expansion in 2028.

That matters because ASML is no longer discussing only a cyclical improvement in orders. Management said Low-NA EUV capacity for 2027 is now close to fully covered by orders, while it has already received a significant number of orders for 2028. The company did not disclose backlog value or specific order coverage for 2028, so the later-year capacity plans remain demand-led preparations rather than committed revenue.

Revenue and Operating Performance

Second-quarter revenue was €9.3B, above the high end of ASML’s guidance. The outperformance came primarily from Installed Base Management sales of €2.8B, nearly €300M above guidance, driven by additional upgrade business.

Net system sales were €6.6B, split almost evenly between logic, at 51%, and memory, at 49%. EUV system sales accounted for €3.8B, including one High-NA system, while non-EUV systems contributed €2.8B.

The unusually balanced logic-memory mix reflects a substantial change in the memory market. Management expects memory-related net system sales to grow more than 75% in 2026, driven by DRAM fab expansion, higher DRAM lithography intensity and demand for both EUV and DUV immersion systems. It cited supply constraints and higher prices for both DDR and HBM products as reasons customers are expanding capacity.

Management also expects advanced logic foundry-related net system sales to grow more than 25% this year. The drivers include continued 3 nm investment for AI accelerators, demand at 4 nm and 5 nm for the broader set of chips used in AI systems, and a rapid 2 nm ramp for high-performance computing and mobile applications.

ASML’s outlook is therefore supported by multiple lithography demand drivers. In DRAM, customers are adopting more EUV layers as they migrate to advanced nodes and replace some multi-patterning steps with single-exposure EUV. In logic, increasing process complexity at advanced nodes is raising lithography intensity. These trends are particularly relevant because they support demand for ASML’s advanced systems even beyond simple wafer-capacity expansion.

Non-EUV demand is also improving. Management expects non-EUV net system sales to grow about 25% in 2026, helped by stronger immersion DUV output, increased dry DUV shipments and greater adoption of optical metrology and inspection products at advanced nodes.

Profitability and Margins

ASML reported a 54% gross margin in Q2, above its guidance. The main driver was the mix within Installed Base Management, where management cited very high-margin components and additional upgrade business.

Net income was €2.9B, equal to 31.3% of sales, and EPS was €7.59. The company’s effective tax rate was 17.5% in the quarter; management expects an annualized tax rate of around 17% for 2026.

Operating expenses were above guidance because ASML recognized estimated costs related to its technology and IT transformation, primarily in R&D. R&D expense was €1.3B and SG&A was about €0.3B. This creates some distinction between the quarter’s gross-margin strength and its operating-cost profile: stronger service and upgrade mix helped gross profit, while transformation spending raised R&D expense.

Management expects Q3 gross margin of 55%-57%, above the 54% reported in Q2. On the call, the CFO attributed expected second-half margin strength to a more favorable EUV mix, higher immersion DUV volume, strong Installed Base Management sales and improved fixed-cost absorption from higher shipment volumes.

The EUV mix should improve further in 2027, according to management. ASML expects the bulk of next year’s Low-NA EUV systems to be the newer E model, with some F systems, rather than the mix of B and E tools shipped in 2026. Management said the E and F tools have higher productivity, higher average selling prices and a better gross-margin profile than the older D model. It did not provide 2027 margin guidance.

Demand, Customers and Pricing

Management described customer demand as strong across both advanced logic and DRAM, with customers reportedly entering longer-term agreements with their own customers. ASML said this has improved its customers’ visibility and confidence to make capacity investments.

Installed Base Management is becoming an increasingly important contributor. Management expects this business to grow more than 30% in 2026, supported by service revenue from the expanding EUV fleet and demand for productivity and performance upgrades. Customers are seeking to increase output from existing fabs where clean-room capacity is constrained, making upgrades economically attractive and helping explain the Q2 revenue and margin outperformance.

Management said demand for upgrades should remain strong as long as customers need more output from existing advanced-node fabs. The company is developing upgrades across its EUV Low-NA and immersion installed base and said customers are asking it to accelerate new upgrade products for 2027 and 2028.

Pricing is another emerging, though longer-dated, factor. Management reiterated that its model is value-based pricing and said the current environment gives ASML more flexibility to capture value from customers. However, it cautioned that long order lead times mean any pricing improvement would not affect results immediately.

China is still expected to represent around 20% of 2026 sales. Management said China revenue should rise alongside the overall business, mainly due to higher demand in mainstream logic.

What is ASML’s guidance and outlook?

Management raised full-year 2026 guidance to €43B-€45B of net sales, with gross margin of 54%-56%. The increase reflects strong customer demand and ASML’s ability to raise output through its supply chain, manufacturing operations and field teams.

For Q3, ASML expects revenue of €11B-€12B, including about €2.9B of Installed Base Management sales. Gross margin is expected at 55%-57%, with R&D expense of about €1.2B and SG&A expense of about €0.4B.

For the full year, management expects around 65 Low-NA EUV shipments, producing more than 45% year-over-year growth in EUV net system sales. It expects about 130 immersion DUV shipments, similar to 2025 output, after accelerating production during the year. Dry DUV shipments have also increased markedly, according to management.

High-NA EUV remains strategically important but is still progressing toward the maturity required for broader high-volume manufacturing. ASML said Intel Foundry is using its High-NA technology on Intel 18A to produce a subset of Intel Core Ultra Series 3 processors. Management characterized that as an important production-environment milestone. ASML continues to expect to recognize revenue on four to five High-NA systems during 2026.

Balance Sheet, Cash Flow and Capital

ASML ended Q2 with €7.6B in cash equivalents and short-term investments and generated €1.3B of free cash flow.

The company continued shareholder distributions during the quarter. ASML paid a final 2025 dividend of €2.70 per ordinary share, bringing the total 2025 dividend to €7.50 per share when combined with prior interim dividends. It also repurchased about €1.1B of shares under its 2026-2028 buyback program.

The first interim dividend for 2026 will be €1.88 per ordinary share, payable on August 5, 2026.

What Investors Should Watch

1. Conversion of 2027 and 2028 EUV Demand Into Orders

ASML said 2027 Low-NA EUV capacity is nearly fully covered by orders and that 2028 orders are already meaningful. Investors should watch whether demand signals translate into further firm commitments, particularly as the company evaluates capacity for roughly 110 Low-NA EUV systems in 2028.

2. Memory Demand and DRAM Capacity Buildouts

Management expects memory-related net system sales to grow more than 75% in 2026. The durability of this growth depends on DRAM customers following through on fab expansions and maintaining investment in advanced-node transitions that require more EUV and immersion lithography.

3. Installed Base Management Mix

The Q2 beat and gross-margin outperformance were driven largely by upgrade activity. Continued strength would support both revenue growth and margins, but the upgrade business is partly tied to customers’ near-term need to maximize capacity from existing fabs.

4. Supply-Chain Execution and Capacity Ramp

Management’s 2027 and potential 2028 capacity expansions rely on optimizing existing clean-room space, shortening cycle times and increasing supplier output. The company has not said it needs a new footprint to meet its near-term plans, but execution speed remains critical if customer demand rises further.

5. High-NA EUV Production Maturity

Intel’s use of High-NA on a subset of processors is a meaningful validation step, but management continues to frame broader adoption around platform maturity. Investors should watch additional production qualifications in logic and DRAM, as well as whether High-NA becomes a practical capacity option alongside Low-NA systems.

AlgovestIQ Takeaway

ASML’s Q2 results were stronger than its own expectations, but the more consequential development was the raised full-year outlook and the extension of demand visibility into 2027 and 2028. AI-related investment is supporting both sides of ASML’s leading-edge business: logic customers are expanding advanced-node capacity, while DRAM customers are increasing capacity and adopting more lithography-intensive processes.

The quality of the Q2 beat was also favorable. Installed Base Management sales exceeded guidance because customers bought additional upgrades, and those upgrades carried a high-margin mix. That helped lift gross margin to 54% despite higher-than-guided operating expenses related to ASML’s technology and IT transformation.

The central question now is whether the present capacity expansion cycle remains as broad and durable as management’s order discussions indicate. ASML’s plans for 30% Low-NA EUV and immersion capacity increases in 2027, plus potential further expansions in 2028, suggest demand is materially stronger than the company had previously planned for. Yet the 2028 plans are still under investigation, not firm guidance, and depend on customer commitments and supply-chain execution.

A strengthening thesis would be supported by continued firm order coverage for 2028, sustained DRAM investment, strong upgrade demand and evidence that higher-value EUV mix and operating leverage can support margins beyond 2026. A weakening thesis would emerge if customer capacity plans soften, upgrade demand normalizes sharply, or ASML encounters bottlenecks in expanding output.

High-NA EUV remains a strategic upside factor rather than the primary driver of current results. Intel’s production milestone improves confidence in the technology’s path, but broader economic adoption still depends on ASML bringing the platform to the maturity level where it offers a clear cost-of-patterning advantage over Low-NA EUV and multi-patterning alternatives.