ASML Holding (ASML)

Total return at 5 years: -0.4%/year = -1.1% appreciation + 0.7% dividend. The target price ($1,658) is ex-dividend; the $60 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $1,364 · Multiples $1,383) is below the market price ($1,750).

Today — expensive, no margin of safety: at $1,750 trades ~26.6% above its value discounted to today (~$1,383); the expected return does not even reach the risk-free rate (4.5%).

At 5 years — Sobrevalorado: the expected total return is negative — the price already discounts a demanding scenario that, if not met, results in a loss.

The bridge: the return at 5 years falls below the risk-free rate (4.5%) — which is why there is not even a discount to today's value. To require a 15% annual return, it would need to be bought at ~$863.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($1,750) is taken as given and it solves for what annual owner-earnings growth would need to hold for 10 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The price discounts growth (12.1%/year) above our base case (9.0%/year) → it is priced for a demanding scenario and leaves little cushion against a slowdown.

That growth implies ~€31.4 bn of owner earnings in year 10 (vs ~€23.7 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on EV/NOPAT. In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Amounts in euros: ASML reports in euros and trades in dollars on Nasdaq, so the entire model runs in its own currency and the conversion is done only once, at the close of the waterfall, at the day's exchange rate. Rolling grid: year 0 is the real TTM at 28-Jun-2026 (revenue €35.3bn, operating income €12.5bn, from the FY2025 20-F plus the two quarters of 2026). ASML is the world's only manufacturer of extreme ultraviolet lithography systems —its own 20-F says so— and therefore the bottleneck for every advanced chip; the business is completed by deep ultraviolet lithography, metrology and an installed base that already contributes €8.2bn a year of service and upgrades (25% of revenue, the recurring part). The path starts at +39.6% because the company raised its 2026 guidance twice —from €34-39bn in the February 20-F to €36-40bn in April and to €43-45bn on 15 July, with a gross margin of 54-56%— and year 0 still carries the weak second half of 2025: the jump is the catch-up against that guidance, not an extrapolable rate, and that is why the path falls to +13% in year 2 and keeps declining steadily to +6.2%. The operating margin expands from 35.4% to ~43.5% on operating leverage over research and development growing more slowly than sales, consistent with the 56-60% gross margin the company projects by the end of the decade. The exit multiple is set at 21× EV/NOPAT: within the semiconductor band [18,25], below the 21.8× suggested by the rule for position within the band, and far below the ~51× the market pays today — multiple compression is what decides the verdict, not the path. The bear case models a digestion with falling revenue, which is how capital equipment behaves when the cycle turns, and not a simple deceleration. Cash accumulates no surplus: it is managed by customer advances (contract liabilities €17.4bn), which in the first half of 2026 drained €6.8bn of working capital and took cash from €12.9bn to €6.7bn. Watch: customer concentration (four exceeded 10% of sales and together account for 61.2%), export controls on China (29.1% of 2025 sales) and the dependence on Carl Zeiss as sole supplier of the optics.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $1,658 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $1,750, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $1,658 in 5 years plus $60 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $1,383. Against the current market price ($1,750), the margin of safety is -26.6% (trades above the maximum → a premium is paid) and the total return at that price would be -0.4% annually.

• Entry multiple. ~51× net operating profit after tax: the market is paying up front for the artificial intelligence investment cycle.
• Exit multiple discipline. 21×, within the category band [18,25] and below the position suggested by the rule — so as not to stack peak growth on top of a peak multiple.
• Forward compression. The multiple falls from ~51× today to ~20× by the fifth year: growth cheapens the entry point, but not enough to close the gap.
• Margin of safety. -103% against the maximum price that leaves a 15% annual return: today's price leaves no cushion against a turn in the cycle.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (97%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Return on capital. 57.5% on invested capital, far above the 10% hurdle: the excess spread is value created.
• Cash backing of accounting return. The cash-based return (55.8%) practically matches the accounting return: earnings are cash, not accruals.
• Negative working capital. Customers finance production in advance: €18,900M of net contract liabilities. This is free, self-generated funding, and it explains a good part of the return on capital.
• Stock-based compensation. €202.9M, 0.6% of revenue and 2.0% of cash flow: immaterial, and already expensed within the operating profit being valued.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

ASML's driver is value per machine × installed fleet, not machine count: lithography units fell for three consecutive years (449 → 418 → 327) while revenue grew, because the mix is shifting toward much more expensive EUV systems. Remaining performance obligations are the leading indicator — revenue already contracted under framework agreements of up to five years — and the installed base is what converts every past sale into an annuity of service and upgrades.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (28-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Company's current guidance. Raised twice in five months: €34-39bn in the February 20-F, €36-40bn in April, and €43-45bn on July 15, with gross margin moving from 51-53% to 54-56%.
• Leading indicator. Remaining performance obligations of €46,500M at the close of 2025, up from €43,300M — contracted revenue that anchors the projection with signed orders, not with trend.
• Committed capacity. +30% of low numerical aperture EUV capacity over the ~65 units of 2026 and +30% in immersion over ~130 for 2027, with another +30% under evaluation for 2028.
• Sustainability of the rate. The +39.6% starting point is a catch-up against guidance, not an extrapolable rate: the base year carries the weak second half of 2025. The path falls to +6.2% by the fifth year.

• Predictability and recurrence. Installed base management contributes €8,193.0M (25.1% of revenue, +26.2%) and remaining performance obligations total €46,500M, with 65% to be recognized within twelve months: there is contracted revenue, not just an estimate.
• Differentiated or commodity product. World's only manufacturer of EUV lithography according to its own 20-F; in DUV it competes with Canon and Nikon.
• Pricing power. Price per system rises with mix: revenue grew 15.6% in 2025 while lithography units fell from 418 to 327.
• Operating leverage. Strong and double-edged: operating margin rose from 31.9% to 34.6% with revenue +15.6%, but the same lever runs in reverse when the cycle turns.
• Recession behavior. The filing itself warns that the industry has historically been cyclical; in 2024 revenue grew just 2.6% and units fell for two consecutive years.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net cash $3.9 bn
• ✓Interest coverage (EBIT / interest)104.3x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 97% of ROIC
• ✓Value creation (ROIC − 10% bar)+47pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 1.4x
• !Float / working capitalConsumes cash $0.4 bn (positive WC)
• ✓Dilution (SBC % of revenue + shares)SBC 0.6% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Net cash position. Cash and short-term investments of €7,581.5M against debt of €3,719.7M: net cash of €3,861.8M, with no balance-sheet fragility.
• Cash movement. It fell from €12,916.0M to €6,671.9M in one half-year, but not due to deterioration: €2,077.5M in buybacks, €1,655.5M in dividends, €693.2M in debt repayment, and the working capital of the ramp.
• Working capital quality. Receivables jumped from €3,023.0M to €7,252.6M while current contract liabilities fell from €16,006.3M to €13,858.3M: machines already paid for are being delivered. This is a timing lag, not delinquency.

How cash comes in and how it is deployed. In green, the business's own cash (the owner-FCF it generates and reinvests); in gray, the float and credit — customer and funding money, which is not the shareholder's.

In 2025 ASML returned €8,500M to shareholders — €5,950M in buybacks and €2,550M in dividends — on free cash flow of €11,000M, and reinvested €1,573.6M in fixed assets. Total dividends for the year were €7.50 per share (three interim payments of €1.60 plus a final payment of €2.70), and the first 2026 interim payment has already risen to €1.88. The Supervisory Board approved a 2026-2028 buyback program of up to €12,000M, of which ~€2,100M was executed in the first half. Research and development — €4,698.8M a year — is booked as an expense, not as investment, so it does not appear in this breakdown despite being the company's most important capital allocation. There are no material acquisitions: growth is organic.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Team track record. Christophe Fouquet has been CEO since April 2024 after sixteen years at the company, including leading the EUV program; Roger Dassen has been CFO since 2018.
• Ownership alignment. The guidelines require the CEO to hold shares worth 4 times annual salary and the rest of the Board of Management 3 times; all complied as of the close of 2025 (Fouquet at 5.77 times). In absolute terms the board's combined holding is small: 51,095 shares, 0.01% of the equity.
• Return of capital to shareholders. €8,500M returned in 2025 — €5,950M in buybacks and €2,550M in dividends — on free cash flow of €11,000M, with a 2026-2028 program of up to €12,000M.
• Long-term compensation metrics. Starting with the 2026-2028 cycle, 35% is tied to adjusted return on invested capital, in addition to relative total shareholder return (25%) — a bar aligned with value creation.

• It is not cheap, and that is the conclusion: at ~51× net operating profit after tax, the earnings yield does not reach the risk-free rate. The price reflects the exceptional business that it actually is.
• There is no lack of buyers: it is one of the most closely followed companies in the world, with dense analyst coverage, and its role as the bottleneck of artificial intelligence has been public knowledge for years.
• There are no motivated sellers or accounting distortion: no one-off charge depresses earnings, no cash flow is depressed by voluntary investment.

No source of discount is identified, and that is the conclusion, not an omission. There is no lack of buyers — it is one of the most closely followed companies in the world — there are no motivated sellers, no one-off charge depresses accounting earnings, and no cash flow is penalized by voluntary investment. Under the method's own taxonomy, when neither a lack of buyers nor a motivated seller appears, the asset is most likely not cheap: the price reflects the exceptional business that it actually is. An opportunity requires perception to be considerably worse than reality, and here perception is, if anything, better.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -17%/year (-61% total): the margin of safety protects the downside. The bull (+8%/year, +47% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Customer concentration. Four customers exceeded 10% of sales and together total 61.2%; the largest, 23.9%.
• Regulatory exposure. China accounted for 29.1% of 2025 sales, and advanced systems require Dutch and U.S. export licenses.
• Sole-source supplier dependence. Carl Zeiss SMT is the sole source of the critical optics; partly mitigated by ASML's 24.9% equity stake and the dedicated loans.
• Cyclicality. Sells capital goods into an industry the filing itself describes as historically cyclical, at the peak of an unprecedented investment cycle.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A wide moat and ROIC 57% above the 10% bar, but the price sits above value (no margin) → great business, expensive.

• Peter Lynch Growth at a reasonable price (GARP)

  A fast grower growing 9% at a multiple/growth of 5.7 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 2% (EBIT/EV) + ROIC 57% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts 12% vs our 9%: priced for perfection, no favorable mispricing.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -18%/yr over 5y (material loss) → risk of permanent capital loss.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: intangibles, switching costs, efficient scale → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  The price implies 12% vs our 9%: coherent, but at the optimistic end of the range.