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I've been sitting on the sidelines on ASML but am wondering if I'm missing something. Would love the community's input.
**The bull case is obvious (and I agree with it):**
* Monopoly. ASML is the sole commercial provider of EUV lithography machines. Every advanced chip in the world (AI accelerators, HBM memory, leading-edge logic) is physically impossible to manufacture without their machines. There is no meaningful competitor on any 3-5 year horizon. China's homegrown program is estimated 5-10+ years behind.
* The business quality is exceptional. ROIC has averaged \~80% over the past 5 years, hitting 102% in FY2025. Balance sheet is essentially debt-free (Debt/Assets \~5.6%). They returned $8.5B to shareholders in 2025 while fully funding their own growth.
* Demand is real and contracted. €38.8B backlog, €46.5B remaining performance obligations, €19.4B in already-received customer down payments. SK Hynix signed a $7.9B EUV order through end of 2027. Memory customers are reportedly sold out for the rest of the year.
* The installed base business (service + upgrades on deployed EUV machines) is growing \~24% YoY and is recurring. This is a compounding revenue stream that gets larger every year just because ASML keeps shipping machines.
* Revenue reaccelerated in FY2025 (+15.6% YoY) after a 2024 pause (+2.6%), and Q1 2026 came in at +13.3% with gross margin at the high end of guidance (53%). Management raised FY2026 guidance to €36-40B.
**Here's my problem: the price.**
The stock is sitting at \~60x GAAP P/E near all-time highs, having gone from $679 to \~$1,566 in about 10 months. The P/E was \~32x a year ago. That re-rating happened while 2024 EPS actually *declined* year-over-year.
At 60x GAAP P/E, the market is embedding roughly 20-25% annual EPS growth sustained for several years. ASML's historical 5-year EPS CAGR is \~22%, so the price essentially requires the company to run at maximum historical pace with no deceleration. And even in the bull scenario (FY2026 EPS \~€29-30, 50-60x P/E), you're looking at something like $1,700-$2,100, call it 10-35% upside. Meanwhile Q1 earnings beat + guidance raise actually caused a 5% single-day drop, which tells you the expectations bar is already priced in.
**The risks I see:**
1. **MATCH Act**: legislation that could eliminate DUV sales and potentially DUV service revenue to China. China is \~20% of ASML's guided 2026 revenue. Management says the €4B guidance bandwidth accommodates export control uncertainty, but a stringent outcome could shave €5-8B off annual revenue, and the non-China DUV market was apparently already soft in 2025, masked by China outperforming.
2. **Gross margin is stuck at 53%.** Management's 2030 target is 56-60%, but the trajectory there depends on High-NA EUV scaling to high-volume manufacturing at multiple customers, and on the installed base mix continuing to grow. TSMC already announced they're delaying High-NA adoption to 2029. That 56-60% target looks like a 2028-2030 story at best, and it's not visible in the near-term numbers.
3. **Multiple compression risk.** Even if the business delivers exactly as guided, a re-rating from 60x to 35-40x while EPS grows 10-15% could mean the stock goes nowhere for 2-3 years. That's the "time correction" scenario.
**My question to this sub:**
I understand *why* ASML deserves a premium multiple: the monopoly is real, the compounding installed base is real, the AI-driven capex cycle is real. But I can't figure out what I might be *underestimating* that would make the current price look cheap rather than fairly valued at best. Is there a variant perception here I'm missing?
Is the IBM recurring revenue more valuable than P/E-based analysis captures? Is the High-NA ramp going to be faster than I think? Is the MATCH Act risk overstated?
I'm genuinely trying to figure out if there's a reason to buy today vs. wait for a pullback or a negative catalyst that creates a better entry. What am I missing?