Strong business momentum + attractive valuation UBS Group AG maintains its "top pick" rating on ASML Holding NV ADR (ASML.US).

UBS Group AG released a report stating that ASML Holding NV ADR (ASML.US) performed in line with expectations in the first quarter of 2026, and the company has increased its revenue guidance for 2026, highlighting the high visibility of its business. UBS Group AG continues to give ASML Holding NV ADR a "Most Preferred" rating, believing that its business momentum is strong, its valuation is attractive, but risks such as political issues with GEO Group Inc still need to be monitored. Key points from the first quarter financial report: In the first quarter of 2026, ASML Holding NV ADR's sales reached 8.77 billion euros, 1% higher than market expectations and above the midpoint of the company's guided range of 8.2-8.9 billion euros. The gross margin was 53%, at the upper limit of the company's guided range of 51%-53%, mainly due to increased capacity from logic and memory chip customers upgrading and installing new equipment. As a result, operating profit in 1Q26 was 4% higher than consensus expectations. In terms of regional sales, system sales in China decreased by 56% compared to the previous quarter, accounting for 19% of the group's system sales, while South Korea accounted for 45%, consistent with management's previous statement that they expect China to account for around 20% of group revenue by the end of the year. Despite seasonal fluctuations, UBS Group AG believes that long-term demand in the Chinese market remains strong; if political risks with GEO Group Inc increase and drive further early purchasing by customers in that region, it could be a potential upward driver for ASML Holding NV ADR in 2026. UBS Group AG emphasizes that ASML Holding NV ADR's peers are much more optimistic about the Chinese market than ASML Holding NV ADR. Management's statements and outlook: Looking ahead, ASML Holding NV ADR expects revenue in 2Q26 to be between 8.4-9 billion euros, with a gross margin of 51%-52%. UBS Group AG believes that second-quarter performance may be slightly below market expectations. At the same time, the company has adjusted its revenue guidance for 2026 from 34-39 billion euros to 36-40 billion euros, representing a growth rate of 10%-22%, with a midpoint of 16%, in line with current market consensus expectations. UBS Group AG points out that ASML Holding NV ADR usually raises its annual revenue guidance during the second quarter or first half of the year financial report period. This increase in guidance in the first quarter highlights the high visibility of its business. The company expects increased demand for deep ultraviolet (DUV) immersion equipment (mainly from non-Chinese markets), indicating that its growth drivers are continuously widening and will accelerate in 2026. The management of ASML Holding NV ADR only mentioned that order performance was strong in the first quarter financial report, providing no further explanation. However, the CEO gave guidance for equipment supply in 2026 and 2027, expecting to produce at least 60 low-NA EUV equipment in 2026 and at least 80 in 2027, with market consensus expectations currently at 74 for 2027. This growth is mainly supported by strong demand from logic and memory chip customers. Management emphasizes that capacity constraints for ASML Holding NV ADR customers may continue beyond 2026, and long-term supply agreements (said to be 3-5 years for DRAM agreements, typically 1 year in tight supply situations) provide visibility for demand. UBS Group AG states that based on 1Q26 memory system sales, overall memory system sales growth in 2026 is expected to exceed 50%. ASML Holding NV ADR's equipment capacity expansion in 2026-2027 will be limited by cleanroom supply rather than demand; UBS Group AG believes that if the speed of cleanroom deployments accelerates, the delivery volume of low-NA EUV equipment in 2027 may exceed the baseline of 80 units. This trend is crucial for the stock performance of ASML Holding NV ADR. Attractive valuation, maintaining "Most Preferred" rating: Overall, UBS Group AG believes that ASML Holding NV ADR's performance in 1Q26 met expectations and the upward adjustment of its 2026 guidance to market consensus levels may lead to a subdued short-term reaction in the stock price. However, the comments on the outlook for 2027 are the core support of the investment logic, and if the speed of cleanroom deployments by customers accelerates, performance guidance may be further raised. UBS Group AG remains optimistic about ASML Holding NV ADR, believing that its business momentum is strong, industry demand remains robust, and customer capacity gaps are at historically high levels. Expenditures in the logic and memory chip sectors are expected to remain strong, and there is potential for unexpected growth in the DUV business. The current price of ASML Holding NV ADR is 33 times the expected earnings for 2027, slightly lower than the expected price-to-earnings levels of the past 10 years and 2 years. In addition, ASML Holding NV ADR's valuation is historically low compared to peers, leading UBS Group AG to maintain its "Most Preferred" rating for ASML Holding NV ADR.