ASML’s €120 Billion Tailwind: EU Chips Act 2.0 Fuels Rally, but Valuation Questions Mount

ASML shares surge 111% in a year on AI demand and EU semiconductor push, but trade at 19% above Morningstar fair value. Key support at €1,355.

Brussels is betting big on semiconductor sovereignty, and ASML sits at the centre of that wager. The European Commission’s planned “Chips Act 2.0” aims to mobilise up to €120 billion in public and private investment by 2035, with a new emphasis on linking domestic chip producers with end-users in automotive, telecoms and defence. For the Dutch lithography giant, that policy thrust reinforces its strategic indispensability — and could inject fresh momentum into a stock that has already surged 40% in 2026.

Yet the share price, which closed Friday at €1,388.60, now stands roughly 19% above the fair value estimate Morningstar published in late May. The gap between market enthusiasm and fundamental appraisal is widening, and investors are weighing the next catalyst against the risk of overextension.

A Rally That Demands Fresh Conviction

The stock’s trajectory tells a story of relentless demand for AI-driven infrastructure. After hitting a 52-week high of €1,420.80 on 25 May, ASML has slipped slightly, posting a weekly decline of just over 1%. The monthly gain, however, remains striking: 16% since the end of April, while the 12-month return stands at 111%. The company’s market capitalisation now approaches €550 billion, making it Europe’s most valuable listed business.

Operationally, the narrative remains solid. First-quarter revenue came in at €8.8 billion, with a gross margin of 53% and earnings per share of €7.15. Management’s upgraded full-year guidance — net revenue between €36 billion and €40 billion for 2026, with a gross margin of 51% to 53% — reflects strong customer demand for lithography systems, particularly those linked to AI-related chip production. The guidance does factor in potential impacts from ongoing export control discussions, especially regarding China, which remains a key risk.

Buybacks Signal Confidence, But Technics Hint at Caution

ASML has continued its share repurchase programme, spending roughly €1.1 billion in the first quarter. Between 18 and 22 May, the company bought back shares worth about €15.9 million daily at weighted average prices ranging from €1,255 to €1,393. The buyback, launched in January, underscores management’s view that the equity remains attractively priced — even as some independent valuation models suggest otherwise.

The stock’s current price-to-earnings ratio of approximately 54.9 sits well above its five-year median of 38 to 39. That premium is the price investors pay for a “pick-and-shovel” role in the AI boom, but the elevated multiple leaves little room for execution missteps. The relative strength index at 49.6 points to a neutral technical posture — neither overbought nor oversold.

Chart watchers are eyeing key levels. Resistance is pegged at €1,455, the week’s high, while support lies at €1,355 (last Friday’s low) and further down at €1,331. The 100-day and 200-day moving averages, at €1,219 and €1,045 respectively, remain comfortably below the current price, confirming the long-term uptrend’s intact structure. The immediate task for bulls: reclaim the €1,400 mark and push toward the recent peak.

Policy Tailwind Meets Political Uncertainty

The EU Chips Act 2.0, still in its formative stage, could provide a secular demand boost for ASML’s advanced lithography tools. Unlike the original 2023 legislation, this version focuses on stimulating end-use demand within Europe, which would likely accelerate the construction of leading-edge fabrication facilities. ASML is the sole manufacturer of extreme ultraviolet (EUV) lithography systems required for the most advanced chips, making it a direct beneficiary of any capacity expansion in the region.

But tighter regulatory scrutiny also cuts both ways. US-led export restrictions on China could constrain ASML’s ability to sell its older deep-ultraviolet (DUV) machines to the world’s second-largest semiconductor market. And the new EU initiative may impose its own supply-chain conditions on critical equipment makers. The interplay between industrial ambition and geopolitical geopolitics will determine whether ASML can sustain its current valuation — and whether new investors are willing to pay the premium for a stock that has already run far ahead of its historical norm.

The analyst consensus remains a “Moderate Buy,” but the debate inside portfolios is shifting from “whether to own” to “at what price.” With €120 billion in policy firepower on the table and a dividend hike of 17% to €7.50 per share, ASML offers plenty of reasons to stay bullish. The question, as ever in overheated markets, is whether the story has already been priced in.