ASML Holding NV ADR (ASML.US) earnings validate EUV demand; UBS Group AG expects earnings upgrades over the next two years.

UBS Group AG released a research report stating that the Q3 2026 results of global lithography leader ASML Holding NV ADR (ASML.US) were broadly in line with buy-side expectations, with EBIT about 5% above consensus and Q4 EBIT guidance midpoint about 7% above consensus. Based on the company's reiterated and updated 2026 guidance, UBS Group AG expects 2027-2028 EPS consensus to be revised up by 5%-10%. UBS Group AG maintains a "Conviction Buy" rating on ASML Holding NV ADR with a 12-month target price of EUR 2,350, implying about 56% upside from the October 13 closing price. Q3 results: Gross margin beat, EUV sales surged YoY but slightly below consensus ASML Holding NV ADR's Q3 net sales were EUR 11.6 billion, broadly in line with consensus. Of this, installed base management sales were EUR 3.3 billion, 13% above consensus; EUV system sales were EUR 4.1 billion, up 94% YoY, but 7% below consensus. China system sales grew 110% QoQ but declined 17% YoY, accounting for 23% of ASML Holding NV ADR's Q3 product sales. ASML Holding NV ADR continues to expect China to account for about 20% of group sales this year. In addition, ASML Holding NV ADR's gross margin reached 57.5%, above the 56% consensus, driving Q3 EBIT about 5% above consensus. Key takeaways: Capacity undersupplied, order interest extends to 2029-2030 The report highlighted that ASML Holding NV ADR noted its planned 30% capacity increase for Low-NA EUV and immersion DUV in 2027 and 2028 is still insufficient to meet customer demand. The company is studying further capacity expansion, especially in 2028, and developing installed base upgrade solutions. ASML Holding NV ADR has received "a large number of 2028 orders," and customers have strong interest in 2029 and even 2030 orders. UBS Group AG believes this means backlog disclosed next quarter will far exceed consensus. Moreover, pricing negotiations have been completed, with the impact partially visible in 2027 and fully reflected in 2028. This provides additional support for future gross margin and earnings growth. Q4 profit guidance beats, 2027-28 EPS likely to be revised up For Q4 2026, ASML Holding NV ADR expects net sales of EUR 14.2-15.2 billion (consensus: EUR 14.3 billion), gross margin of about 57% (consensus: 56.7%), implying Q4 EBIT could beat consensus by about 7%. Management's comments on capacity demand for 2028 and beyond suggest upside to EUV unit forecasts. Combined with the strong gross margin outlook, UBS Group AG believes 2027-2028 gross margin consensus may move higher, driving 2027 and 2028 EPS forecasts up by 5%-10%. How will investors react? UBS Group AG believes the results were broadly in line with buy-side expectations. Given elevated expectations ahead of the earnings release, the outcome may be slightly disappointing. However, the report shows strong backlog for next quarter and further strengthens confidence in the continued positive gross margin trend. Therefore, UBS Group AG views this update as a positive signal and reiterates its "Conviction Buy" rating on ASML Holding NV ADR. The key focus of the call will be the scale of planned capacity expansion in 2028, which will likely determine how much upside there is to current forecasts.