Can ASML improve profit margins through EUV tools with the upgrade of DRAM chip manufacturing?

The story of ASML is not just about the technological monopoly of EUV lithography machines, but more importantly how it profits from the upgrade of the chip manufacturing industry chain.

As the industry focuses on the iteration of logic chips, technological advances in the DRAM sector are becoming an underestimated profit growth point. ASML’s gross margin in Q3 2025 increased by 80 basis points year-over-year to 51.6%, and the driving forces behind this are quietly changing. Logic chips still account for two-thirds of system sales, but the adoption rate of EUV in the DRAM industry is accelerating—especially for high-bandwidth storage chips related to AI, which require increasingly precise processes.

Why has DRAM become a new profit lever for ASML?

The traditional view considers DRAM as a low-margin business, but this perception is becoming outdated. As memory chips evolve toward higher-density architectures, DRAM manufacturers must adopt EUV processes. Meanwhile, advanced nodes for logic chips require multi-layer EUV exposure, which boosts tool utilization and increases demand for software upgrades and services. These recurring revenue streams often have higher gross margins than initial system sales.

The rising EUV penetration in DRAM directly means higher-value system orders. Extreme Ultraviolet lithography tools are priced far higher than Deep Ultraviolet tools, and the higher the proportion of EUV sales, the higher ASML’s average order value. Looking at the full year 2025, ASML expects sales to grow by about 15%, with a gross margin approaching 52%, reflecting sustained strong demand for EUV.

What does the guidance for Q4 reveal?

ASML expects Q4 revenue between €9.2 billion and €9.8 billion, a quarter-over-quarter increase of 26.3% (median). The gross margin is expected to be between 51-53%, improving by 40 basis points quarter-over-quarter. These figures suggest a dual boost from EUV shipments and high-margin service businesses—indicating that the real demand for advanced processes from the downstream chip manufacturing side is being released.

Other players in the industry ecosystem

While ASML monopolizes the supply of EUV lithography machines, the chip manufacturing equipment sector is not dominated by a single company. Applied Materials provides etching and deposition tools, which help manufacturers achieve smaller nodes and higher performance as AI chip designs become more complex. KLA Corporation focuses on process control and inspection systems to ensure manufacturing yield. The performance of these two companies, to some extent, reflects the health of downstream chip manufacturing—including the pace of DRAM upgrades.

Valuation and market expectations divergence

ASML’s stock price has increased by 33.3% over the past six months, outperforming the 22.2% rise in the tech sector. However, its forward P/E ratio of 33.76 is higher than the sector average of 27.76, and whether this premium can be sustained depends on whether growth can be realized. Consensus EPS estimates for 2025 project a 39.3% YoY increase, but only a 3.8% increase in 2026—indicating market concerns about long-term growth. Over the past 30 days, estimates for 2025 have been raised, while those for 2026 have been lowered, reflecting cautiousness about the potential peak of the EUV cycle in the near term.

Bottom line

The upgrade of DRAM processes and the demand for AI chips have created new growth opportunities for ASML’s EUV tools. As service revenues and installed bases expand in tandem, ASML’s profit structure is expected to gradually optimize. However, valuations already reflect optimistic expectations, and investors need to closely monitor actual investment plans of DRAM manufacturers and whether EUV penetration can accelerate as anticipated.