ASML’s AI Wager and Shrinking China Share: A Tale of Two Transformations

The Dutch lithography titan ASML is navigating a dual narrative that has investors both cheering and squinting. On one hand, the company is riding a wave of artificial intelligence-driven demand so powerful it has prompted a rare mid-year revenue upgrade. On the other, its exposure to China—once a cornerstone of its sales mix—is dwindling fast under the weight of export controls, while a bold €1.3 billion bet on a French AI startup signals a strategic pivot that could reshape its future.

The market’s verdict after the annual general meeting on April 22 was cautiously bullish. ASML shares closed at €1,234.80 on Friday, up roughly 2.3% on the day, extending year-to-date gains to nearly 25%. That recovery came after a sharp initial sell-off when first-quarter results landed—the stock had tumbled more than 7% before rebounding, and now sits just under 5% below its 52-week high.

A Revenue Upgrade Backed by Billions

CEO Christophe Fouquet used the AGM to lift the company’s 2026 revenue target to a range of €36 billion to €40 billion, up from the previous €34 billion to €39 billion. The second quarter is expected to deliver sales between €8.4 billion and €9.0 billion, with a gross margin of 51% to 52%. That margin guidance, however, has been a source of investor anxiety: it represents a step down from the 53% recorded in the first quarter, and explains the initial post-results jitters.

The first quarter itself was a beat on both top and bottom lines. Revenue hit €8.8 billion, topping the consensus estimate of €8.5 billion, while net income came in at €2.8 billion against expectations of €2.5 billion. Earnings per share reached €7.15. The full-year 2025 numbers provided the foundation for the upgrade: revenue of €32.7 billion, up 16% year-on-year, with net profit of €9.6 billion and a gross margin of 52.8%.

Fouquet attributes the optimism to what he describes as a “massive investment surge” in AI infrastructure. He expects the industry to pour more than $2.5 trillion into the space over the next two to three years, with 60% to 70% of that coming from the United States. That demand is already reshaping ASML’s product mix: extreme ultraviolet (EUV) lithography systems accounted for 66% of system sales in the first quarter, up sharply from 48% in the prior quarter.

The China Question: From 41% to 20%

Perhaps the most striking shift in ASML’s business is the rapid decline of its Chinese revenue share. In 2024, China represented 41% of total sales. That fell to 33% in 2025, and the company now expects it to drop to around 20% in 2026. The first quarter already reflected that trend, with China accounting for just 19% of sales, while South Korea jumped to 45%.

The reasons are twofold: tightening export restrictions and ongoing regulatory uncertainty, including the potential impact of the so-called MATCH Act. CFO Roger Dassen acknowledged that export control risks remain, but argued that in a supply-constrained market, restrictions on one region can be offset by capacity expansion elsewhere. The company’s production capacity for EUV systems grew 30% year-on-year, and by the end of 2025, ASML had shipped eight of its newest High-NA EUV systems.

Should investors sell immediately? Or is it worth buying Asml?

Still, there are headwinds. TSMC has reportedly delayed the introduction of those next-generation High-NA EUV systems until 2029, a move that could temper near-term demand for ASML’s most advanced—and most profitable—machines.

A €1.3 Billion Bet on Mistral AI

The AGM also brought a surprise disclosure: ASML had invested approximately €1.3 billion as the lead investor in French AI startup Mistral AI’s Series C funding round, giving it an 11% stake on a fully diluted basis. The investment is not merely financial. Dassen offered a concrete example of the partnership’s early payoff: a wafer-stage diagnostics process that previously took more than ten hours can now be completed in eight minutes using a jointly developed AI model.

ASML plans to deeply integrate Mistral’s generative AI tools into its EUV platform, with the goal of shortening development cycles and lowering costs. For a company whose machines cost hundreds of millions of euros each, even marginal efficiency gains can translate into significant savings.

Capital Returns and Capacity Crunch

Shareholders approved a new share buyback program of up to €12 billion, running through 2028. For the 2025 financial year, ASML proposed a dividend of €7.50 per share. The combination of buybacks and dividends underscores the company’s confidence in its cash generation, even as it invests heavily in both R&D and strategic stakes.

On the production front, Dassen provided specific guidance: ASML expects to deliver at least 60 EUV Low-NA systems in 2026, and is working toward capacity of more than 80 units in 2027. Memory chip makers have already told the company that their 2026 production is fully booked, with capacity constraints likely to extend into 2027.

What Comes Next

The next major checkpoint will be the second-quarter results, due later this year. Investors will be watching closely to see whether the upgraded revenue guidance remains on track, and whether the shrinking China contribution is indeed being offset by AI-driven demand from the US and elsewhere. For the second half of 2026, the key questions are how quickly margins can recover from their current trough, and whether the Mistral partnership can deliver measurable results beyond impressive single-use cases.

Analysts are broadly constructive, rating ASML a “Moderate Buy” with price targets for its US-listed shares ranging from $1,504 to over $1,680. The stock’s trajectory will depend on whether the company can execute on its twin transformations: replacing geopolitical risk with AI opportunity, and turning a €1.3 billion startup bet into a competitive advantage that shows up in the numbers.