ASML Can't Keep Up With 2027 or 2028 Demand. Is It the Best AI Stock to Buy Now?

ASML, the leading semiconductor equipment manufacturer, announced record-breaking third-quarter 2026 results on October 14, 2026. The company exceeded its revenue expectations with 11.7 billion euros, showcasing a remarkable gross margin of 57.5%, surpassing all forecasts. Management disclosed that customers are already placing orders for 2029 and 2030 to satisfy short- and medium-term equipment demand forecasts.

This revelation highlights the potential growth of ASML, making it a prime candidate as the top AI growth stock for long-term investors. ASML's three primary business segments include extreme ultraviolet (EUV) machines, deep ultraviolet (DUV), and non-EUV machines, coupled with servicing its installed base. While DUV systems cater to general-purpose chip manufacturing, they are less efficient in producing AI chips compared to EUV machines.

These cutting-edge lithography systems, which employ far shorter wavelengths of light to print ultra-precise designs on microchips, cost up to $400 million. ASML is currently manufacturing only one unit per quarter as it gradually increases production of this innovative technology. In response to the surge in demand, ASML's CEO, Christophe Fouquet, revealed that the company anticipates a 30% increase in Low-NA EUV and DUV production capacity in 2027 and 2028.

Furthermore, management anticipates a potential 30% expansion beyond the initially communicated growth. This shift in visibility from 2028 to 2028, coupled with a projected 30% capacity increase, underscores ASML's inability to meet the current order volumes, bolstering its pricing power. ASML's market position provides significant pricing power as foundries construct new AI factories and upgrade their equipment to handle AI chip production demands.

The company is now projecting total net sales of 44 billion to 45 billion euros in 2026, with a gross margin hovering around 56%. ASML's sales growth is accelerating, while gross margins have significantly increased. This is primarily due to the surging demand outpacing supply. Moreover, ASML has heavily invested in research and development (R&D) to master High-NA EUV technology.

Although the company continues to allocate substantial resources to R&D, a considerable portion of the groundwork for the current EUV infrastructure has been completed. In the fourth quarter of 2026, ASML is guiding total net sales of 14.2 billion to 15.2 billion euros, with gross margins at 57%, R&D costs of 1.2 billion euros, and sales, general, and administrative expenses of 400 million euros.

ASML's efficiency stems from a reasonable R&D budget and its ability to generate significant revenue without extensive advertising efforts, thanks to the overwhelming demand and its existing installed base. In 2026, ASML anticipates a 36% year-over-year sales growth, with EUV sales expected to grow by 45%, non-EUV by 20%, and installed base management sales projected to surge by 50%.

The earnings call on October 14 highlighted higher EUV sales and services as key drivers behind ASML's improved gross margins. ASML's EUV machines command significantly higher margins than DUV systems, while services revenue from existing units provides high-margin cash flows, irrespective of customer spending fluctuations on new lithography systems.

ASML stands as one of the premier AI stocks for long-term investors due to its dominant position in EUV lithography systems. With high margins stemming from insatiable demand for AI chip manufacturing, ASML's low operating costs, and relatively low R&D expenses, the company can invest in capacity expansions without hampering its cash flows.

ASML has only begun to tap into the potential of High-NA EUV sales. Recent collaborations with companies like Taiwan Semiconductor Manufacturing (TSMC) aim to enhance the efficiency of these systems for advanced node manufacturing by 2033. Considering all these factors, ASML remains the optimal AI stock for investors seeking a comprehensive investment strategy to capitalize on the escalating volume and complexity of AI chip production.