ASML’s China Headwind Meets a Wall of Cash

The Dutch semiconductor equipment giant delivered a textbook quarter: revenue on target, profit solid, and a raised outlook. Yet the stock barely budged. At €1,254.20 on Wednesday, ASML shares are hovering just below their all-time peak of €1,295, held back by a familiar specter—geopolitics.

The numbers themselves tell a story of operational strength. First-quarter revenue hit €8.8 billion, with net income of €2.8 billion. Management now sees full-year sales reaching as high as €40 billion. But the market’s muted response stems from a single line in the regional breakdown: China’s share of revenue collapsed from 36% in the prior quarter to just 19%.

That drop is the direct consequence of US-led export curbs on advanced lithography systems. ASML has already baked further tightening of trade rules into its new annual guidance, a move analysts at Goldman Sachs see as prudent rather than alarming. “The current forecast already reflects these geopolitical risks,” they wrote, maintaining a €1,570 price target with a buy rating.

Buybacks and a Dividend Boost

While trade tensions dominate headlines, ASML is quietly returning billions to shareholders. The buyback program, running through 2028, saw the company repurchase roughly €1.1 billion worth of its own shares in the first quarter alone. The pace continued into mid-April, with nearly 67,000 additional shares snapped up in a matter of days.

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Shareholders also have a dividend hike to look forward to. The proposed 17% increase, set for approval at the annual general meeting, adds another layer to a capital return strategy that is drawing a structural floor under the stock.

The AI Engine Keeps Running

Beyond the China noise, the core business is humming. Demand for cutting-edge chips, driven by the artificial intelligence buildout, continues to outstrip supply. Chipmakers are locking in long-term contracts for ASML’s machines and upgrades, providing rare visibility into future revenue.

The real prize, however, lies in the next generation of technology. ASML sold just two of its advanced High-NA EUV systems in the first quarter, but these machines are essential for the next wave of semiconductors. That gives the company a multiyear growth runway that no export restriction can touch.

Valuation Under the Microscope

Even with all this momentum, the stock’s price tag is giving some investors pause. At a forward price-to-earnings ratio above 39, ASML trades well above its 10-year historical median. The shares have gained roughly 26% since the start of the year, now sitting within single-digit percentage distance of the record high.

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Several investment banks see room to run. Deutsche Bank set a €1,600 target, while RBC Capital went further at €1,700, citing robust EUV demand. A key catalyst, they note, is the memory chip market: customers have already reserved nearly all available production capacity for 2026.

The next test comes with second-quarter results, where ASML has guided for a gross margin of up to 52%. If AI-driven order intake maintains its pace, it could fully offset the China drag. For now, the market is weighing a soaring valuation against a wall of cash—and waiting to see which force wins out.

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