There are a few stocks in my Stocks and Shares ISA that are doing really well this year. One is ASML (NASDAQ: ASML) – Europe’s most valuable company – which is up about 35%.
How has this stock managed to generate such huge gains so early in the year? Let’s take a look at what’s going on here.
Chips are hot
ASML specialises in the design and manufacture of Extreme Ultraviolet (EUV) lithography systems – sophisticated machines that are crucial for the production of advanced computer chips. It’s pretty much the only company in the world that makes these EUV systems so it’s a key player in the current tech/AI revolution. Without its products the tech boom would grind to a halt.
Now this year, companies that play an important role in chip manufacturing have seen their share prices surge. One reason for this is that Taiwan Semiconductor Manufacturing Co – the world’s largest chip manufacturer – has announced a massive capex increase for 2026.
It plans to spend $52bn-$56bn this year building new manufacturing plants. So it’s essentially going to be writing massive cheques to companies like ASML for equipment.
Another reason for the share price surge this year is that, with all the geopolitical carnage, there’s been more focus on ‘silicon sovereignty’. This is where nations are aiming to control their own semiconductor supply chains to ensure national and economic security.
For the last few decades, the chip industry’s been structured for the lowest possible cost, with a lot of manufacturing taking place in Taiwan and Korea. Now however, governments are optimising for geopolitical safety.
Strong earnings
ASML also produced strong earnings for the fourth quarter of 2025 in January. These were far better than expected. For Q4, total net sales came in at €9.7bn versus €7.5bn in Q3. Net bookings was a record €13.2bn – miles ahead of analysts’ forecast of €6.3bn.
In the earnings report, management noted that the group’s customers (eg Taiwan Semi) have recently been more positive in their assessment of the medium-term outlook for AI demand. As a result, they’re investing in capacity.
“We expect 2026 to be another growth year for ASML’s business, largely driven by a significant increase in EUV sales and growth in our installed base business sales.”
ASML President and CEO Christophe Fouquet
Bullish broker sentiment
Given the backdrop and the strong earnings, analysts have been raising their price targets for the stock. Recently, a number of analysts have increased their target to $1,650 or higher, which has no doubt helped the stock.
An investment opportunity?
Is ASML stock worth considering today? Possibly – I see a lot of potential in the long run.
That said, I think it could pay to wait for a better buying opportunity. After a 35% gain in a little over a month, we could see some profit taking soon.
I suspect that recently a lot of institutional money has flowed out of software and into chips. There could be a reversal of this trend at some point in the near future, creating an opportunity.
Note that the stock’s now quite expensive – the price-to-earnings ratio is about 43. This doesn’t leave much room for error (eg capacity constraints).
Given the high valuation, I think there are better opportunities to look at in the market right now.
