ASML Has Entered Buy Territory, But Only For Patient Investors

Key Points

• A new valuation gap in ASML stock means investors have a new reason to take advantage of this company's upside potential.
• Driven by fear and not fundamentals, ASML stock has a big upside gap that needs to be filled.
• Holding a near-monopoly position in the industry, ASML should be part of every AI portfolio.

There are a few players in the technology sector who have a near monopoly in their businesses, and investors can use that to their advantage when planning for the next outsized upside play in their portfolios. Knowing what to look for comes into play for the savvy ones, and those who can connect the dots will likely land on the right side of history in this artificial intelligence gold rush.

And that is exactly where shares of ASML Holding NASDAQ: ASML come into play in this current setup, not only due to their discounted valuations but also because of the moats the underlying business holds across the entire industry, something investors will likely want to have their portfolios exposed to in the coming months.

For that reason, taking a second look at this stock is justified.

As it turns out, today’s industry setup is driven mostly by popularity and hyper earnings per share (EPS) growth, which leaves other worthy names behind in the dust to fall into lower prices for reasons that have nothing to do with the underlying fundamentals or business quality, and that is where the opportunity shows up for those willing to be patient.

Why ASML Should Be Part of an AI Portfolio

This company holds a near monopoly in extreme ultraviolet (EUV) lithography equipment, which is an absolute necessity when making chips and semiconductors in the five-nanometer segment and below.

Those chips have enabled some of the biggest names to reach their current positions.

This means there wouldn’t be an NVIDIA Co. NASDAQ: NVIDIA or Intel Corp. NASDAQ: INTC without this nanometer lithography technology, and that is why ASML should be a stock taken more and more seriously by investors in today’s market, yet it isn’t.

It isn’t often that the market offers these sorts of setups, which are purely made from a lack of exposure and popularity and even fear rather than actual fundamentals. Aside from lagging behind in terms of attention and popularity, the fear factor in ASML comes from being directly exposed to China, Asia’s dominant power.

Fear Has Driven ASML Into a Historical Discount

Now that the stock trades at only 76% of its 52-week high levels, investors need to understand why this is the case. The truth is, ASML is based in Europe. This nation is capturing a larger share of China’s growth engine by providing technology in exchange for cheap goods and services.

That said, the market today punishes anything exposed to China, creating an undervaluation gap driven entirely by emotion. All told, ASML stock’s valuation multiples today show a massive valuation gap compared to their historical levels, and that’s where investors can lock in their upside potential.

With a forward price-to-earnings (P/E) ratio of 27.8x today, ASML stock trades well below the historical 40.0x valuation multiple, meaning an upside gap now exists and has to be closed under the right conditions.

These conditions won’t be coming from the company itself, but rather in sentiment.

Investors saw this in any Chinese stock during 2022 and 2025, as they became the most hated and least trusted in the entire market. This was until some of the biggest investors in the United States started to buy them and reiterated their underlying fundamentals, creating a bigger trust base for retail investors to consider them for themselves.

Which means the ASML story will look a lot like that. Investors are still very early in considering this company, as no major investor or institution is discussing it, despite its crucial role in the chipmaking and semiconductor industry.

There is one sign to be taken home as a confirmation of this potential future, though, and that is another less popular valuation multiple. With a 14.6x price-to-book (P/B) multiple, ASML contrasts itself from the discounted P/E multiple and now commands a premium compared to the rest of the computer sector and its average 9.1x P/B valuation.

This means that savvy market operators are choosing the one multiple that few other investors ever check to gain some exposure at a premium in ASML stock, a premium for a reason. This divergence (discounted P/E and premium P/B) typically comes right before a major move in the stock, hence why investors are early.

Suppose they are willing to endure the criticism of China, volatility, and holding a stock that everyone else has discarded. In that case, these patient investors may see outsized returns in the future when holding ASML stock for themselves.