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Dutch semiconductor manufacturing equipment provider ASML Holding’s (ticker: ASML) stock dropped after its second quarter (Q2) earnings release. While the trends exhibited in its earnings seem positive, the risks underpinning the forward outlook also seem largely unanswered – which have played a leading part in overall market conviction.
Trend AnalysisASML is the sole supplier in the world of extreme ultraviolet lithography (EUV) photolithography machines needed to manufacture advanced chips. As of the first half (H1) of 2026, sales of ASML’s products remain somewhat stable relative to the previous Fiscal Year (FY).
Source: Company Information; Leverage Shares analysis
If current trends continue, FY 2026 will close with a net 10% growth in sales but an 18% increase in net income – both lower than the previous FY’s. A slightly slowed trend in R&D and selling costs are a strong factor behind the slight outpacing of net income growth relative to revenue.
Overall relationships between line items and net sales don’t indicate any substantive changes; in fact, it’s a picture of general consistency.
Source: Company Information; Leverage Shares analysis
In 2024, China alone accounted for nearly half of net sales. In both Q1 and Q2 of 2026, this has reduced to under 20%. ASML states that it expects sales to China – mainly related to mainstream logic (i.e. mature, high-volume semiconductors like microcontrollers, automotive sensors, etc) – to account for 20% of their total net sales for the full year. Given the present percentage share, ASML seems to be implying that sales in China would increase across the rest of the year to bring up the net share for the year up to 20%.
In regional share, South Korea has registered a margin decline of sales share 45% to 43% while Taiwan registered a net increase over all regions by rising from 23% to 30% – largely confirming that TSMC is expanding production by investing in technologies such as ArFi – which bridges the gap between DUV lithography and high-end EUV lithography already in place.
The Politics of Navigating ChinaWhile mainstream logic has largely not been excluded from exports by either the Netherlands or the US presently, the proposed US MATCH Act – which has bipartisan support – making its way1 through the US legislature squarely aims at denying most chip-making technology to China, which could significantly impact ASML’s orderbook in the years to come. Thus, this is an interesting moment for ASML: while the potential for restrictions could boost ASML’s sales in the short run due to enhanced Chinese buy-ins, it would knock about 15-20% of total sales in the long run. The US MATCH Act goes so far as to enable prohibitions on servicing machines already sold to China. Services reliably constitute around fourth of ASML’s net sales and is a high-margin segment.
In this regard, ASML has little agency in the matter. It would stand to reason that ASML could go the Nvidia route and produce lower-complexity machines for sales to China but this could put it squarely in competition with Nikon and Canon.
Incidentally, nearly all of this went largely unaddressed in the earnings call. Looking at from a fundamental level, it seems that both ASML and the analysts tracking the company have largely chosen to address any developments relating to China.
In ConclusionIn its previous outlook, ASML had predicted annual sales in the €36-40 billion range, along with a gross margin in the 51-53% range. Presently, it forecasts €43-45 billion, and a gross margin in the 54-56% on the back of high-margin EUV sales being supplemented by both a 30% addition to both its low-NA EUV and Deep Ultraviolet (DUV) capacities in 2026. At least in the latter and juxtaposing with TSMC’s expansion plans plus sales to China before a prospective restriction on sales, this seems to be in line.
However, execution of sales to China at least remains dependent on the alacrity of legislative action and the scope of restrictions – which finds active opposition2 in the Netherlands, given the prominent share held by technology sales in their trade with China. The mood in the US legislature, meanwhile, is unpredictable: the move to restrict sales to countries deemed hostile is a function of longstanding bipartisan buildup and not necessarily emanating only from the White House.
Whether other regions can absorb capacity rapidly in the event of restrictions being placed is a matter of conjecture. Coupled with the seemingly soft trends relative to the previous FY’s achievement has proven to be deflator of valuation in the short run. Whether this continues in the long run isn’t necessarily in the hands of the people in Veldhoven.
Professional investors might consider the +3x Long ASML ETP (ASL3) and the -3x ASML ETP (ASMS) during bullish and bearish trends in the stock. For a broader yet leveraged exposure, the +4X Long Semiconductor ETP (SOXL) and the -4X Short Semiconductor ETP (SOXS) are at hand.
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