ASML trades at 41.5x forward earnings; Applied Materials at 36.5x. The premium has logic but not as much as the gap implies. One of these companies is materially mispriced.
ASML and Applied Materials are the two essential names in the semiconductor equipment supply chain. ASML sells the lithography systems. Applied sells almost everything else, from deposition to etch to ion implantation to metrology. Both are leveraged to the same underlying capex cycle. Both have excellent competitive positions. The question is which is priced more reasonably relative to its quality.
ASML generated $32.7 billion of revenue in 2025 against $28.4 billion at Applied Materials. Operating income of $11.3 billion at ASML compares with $8.3 billion at Applied. ASML's operating margin of 34.6% is roughly 550 basis points ahead of Applied's 29.2%. That margin gap is the entire reason ASML carries a higher multiple. It is also the thing we need to scrutinise.
Our conclusion up front: ASML is the better business at a worse price. Applied is the worse business at a better price. On risk-adjusted terms, Applied is the more compelling purchase at current levels. The multiple premium ASML carries assumes continued technology isolation that is more fragile than the market prices.
ASML is the sole supplier of extreme ultraviolet (EUV) lithography systems. Every leading-edge logic node (TSMC N3, N2, A16) and advanced DRAM (1-gamma, 1-delta) requires EUV. The technology is the single most complicated industrial product humans currently produce, involving vacuum systems, precision optics from Zeiss, tin plasma light sources, and millimetre-scale alignment. The barriers to entry are effectively infinite on a 5-year horizon; the dual-source potential from Chinese efforts at SMEE is, by the public technical data, still at i-line and DUV benchmarks at best.
This isolation is real. It is the reason ASML has enjoyed a 34-37% operating margin for the past five years while Applied Materials has oscillated between 25% and 30%. It is also the reason the stock trades at 41.5x forward earnings, a multiple that implicitly assumes EUV-plus-High-NA (the next-generation lithography system) retains its dominant market position through 2030 and beyond.
The 2025 revenue of $32.7 billion grew 15.6% YoY after a flat 2024, reflecting the EUV shipment cadence from the N3/N2 capacity ramp and the early High-NA units delivered to Intel and TSMC. 2026 is expected to accelerate further on Samsung's capacity push and on memory demand. That is not a controversial consensus. The controversial question is the pricing.
TickerXray Report
Get the complete ASML report with all 12 quantitative models, AI-generated investment thesis, and real-time data.
Applied is more diversified. Its product portfolio spans chemical vapour deposition, physical vapour deposition, etch, ion implantation, chemical mechanical planarisation, and metrology and inspection. The company competes with Lam Research (etch, deposition), Tokyo Electron (lithography adjacencies, deposition), KLA (process control), and ASML (only in metrology-adjacent). That diversification is both the strength and the multiple discount.
Applied Materials generated $28.4 billion of revenue in 2025, up 4.4% YoY. Operating income was $8.3 billion, a 29.2% margin and a company record. Net income was $7.0 billion, slightly below 2024's $7.2 billion as mix shifted toward lower-margin service revenue and the company absorbed $500 million of restructuring charges related to the Kokusai JV dissolution.
The semi-cap cycle exposure is similar to ASML's but more balanced. Applied captures roughly 60-65% of the non-lithography equipment spend in every new fab, across logic and memory. It also sells into advanced packaging, a segment growing at mid-teens rates as AI accelerator demand pulls forward the 2.5D and 3D packaging investment cycle. ASML has less direct exposure to advanced packaging.
Applied's 5-year revenue CAGR of 4.2% lags ASML's 11%. That is the margin-outgrowth dynamic that justifies the multiple gap. The question is whether the outgrowth is sustainable in the 2026-2028 window.
Look, nobody buys semi-cap names for the dividend. But Applied's capital return program has returned roughly $8 billion annually in 2024-2025, split between buybacks and dividends. That is a meaningful capital return yield at 2.6% on market cap.
Dimension 1: Moat durability. ASML's EUV moat is unambiguous for the next five years. What is less certain is the post-2030 setup. Samsung and Intel are both publicly exploring lithography alternatives; while none are technically credible today, the 5-10 year window has more uncertainty than the multiple implies. Applied's moat is more diffuse but also less concentrated; no single technology shift renders its franchise obsolete. Edge to ASML, but narrower than the multiple gap suggests.
Dimension 2: Margin expansion potential. ASML's 2025 operating margin of 34.6% is below the 2023 peak of 32.8%... actually slightly above. The differentiated lithography pricing has further runway as High-NA ASP doubles that of EUV. Applied's 29.2% is a record. The next 100 basis points at ASML is easier than the next 100 at Applied. Edge to ASML.
Dimension 3: Capital intensity and FCF conversion. ASML's capex of $1.5-2.2 billion annually on revenue of $28-33 billion is a 5-7% capex ratio. Applied's capex of $1.2-2.3 billion on revenue of $27-28 billion is higher, at 7-8%. But ASML's working capital is more volatile given the customer prepayment dynamics; FCF at ASML swung from $3.2 billion (2023) to $10.6 billion (2025). Applied is more steady. Edge to Applied on FCF predictability; edge to ASML on peak FCF.
Dimension 4: Geopolitical exposure. ASML is fully exposed to the US-China chip war dynamics. EUV export restrictions and the DUV extension restrictions remove roughly 15-20% of the addressable market. Applied is also exposed but the China revenue is more resellable elsewhere given the broader product mix. Edge to Applied.
Sum it up. ASML wins on technology moat and margin expansion. Applied wins on FCF predictability and geopolitical resilience. The multiple premium ASML trades at (41.5x forward vs 36.5x at Applied) prices the technology edge but underweights the geopolitical risk and FCF volatility. We would narrow that gap to 200-300 basis points rather than the current 500.
Our call is Applied Materials at current levels, ASML on a meaningful pullback.
Applied is trading at 36.5x forward earnings with an all-time high operating margin, an improving advanced packaging mix, and a capital return program returning roughly 2.6% annually to shareholders. The 5-year revenue CAGR of 4% is modest but the margin expansion story still has runway. Our fair value for AMAT is $420-$450, consistent with 34-36x forward earnings and 5% revenue growth through 2027.
ASML is a higher-quality business priced for the quality. At 41.5x forward earnings and a 50-day MA of $1,401 sitting well above the 200-day at $1,088, the stock has already rallied into the 2026 shipment ramp. Our fair value band is $1,500-$1,650, on 42x 2026 earnings of roughly $37-40 per share. We would be buyers on any pullback to the 200-day at $1,088 or lower. Above $1,450, the risk-reward is neutral at best.
The clear winner in relative terms is Applied. It is not the higher-quality business, but it is the better-priced one. When two excellent businesses in the same cycle have a 500 basis point multiple gap and the gap is priced for technology isolation that has 5-7 years of runway, the edge is with the one trading at the smaller premium. That is the arithmetic.
Full forensic analysis of ASML
+ 6 more models included
150,000+ stocks covered
Global coverage across 60+ exchanges. Every report includes all 12 quantitative models and AI analysis.
View plansEvery report runs 12 quantitative models and generates an AI investment thesis. From Piotroski scores to manipulation detection -- get the full picture in seconds.
12 forensic models
Piotroski, Altman, Beneish, DuPont & more
AI investment thesis
Synthesized outlook on every stock
Manipulation detection
Spot red flags before they hit the news
150,000+ tickers
Global coverage across 60+ exchanges
Expected return
Forward return projections for every stock
Real-time data
Live prices, insider trades, news sentiment
Free accounts get 1 report per month. Pro gets unlimited.
Three weeks after we flagged High-NA risk, the Q1 2026 backlog print arrived. The bookings number was stronger than feared but the customer concentration deteriorated meaningfully. The thesis updates rather than reverses; ASML remains the best risk-reward in semiconductor equipment but the multiple deserves a sharper haircut.
Shares fell 3% on a TSMC delay to high-NA EUV rollout. The real story is a process node workaround that bypasses the most profitable tool in the ASML catalogue.
At 41x forward earnings the multiple looks demanding. The order book and HighNA mix shift make 41x look like the floor, not the ceiling, of where this stock should trade.