As the global artificial intelligence frenzy sweeps across markets, with attention focused on chip giant NVIDIA, ASML, positioned upstream in the supply chain, is emerging as an indispensable, yet often overlooked, winner in this trillion-dollar arms race, thanks to its absolute monopoly in the lithography machine sector. This Dutch tech behemoth not only controls the critical "money-printing machines" for manufacturing high-end AI chips but is also poised for an earnings explosion as chipmakers' capital expenditures surge dramatically.

ASML is scheduled to release its financial results this Wednesday (January 28th), and investors are closely watching its sales forecasts. Driven by tight chip supply and signs of expanding customer investment, ASML's stock price has doubled since last April, with a 25% gain this month alone, pushing its market capitalization above $500 billion and solidifying its position among Europe's most valuable technology companies. According to media reports, Morgan Stanley has maintained its "Overweight" rating on the stock with a price target of €1,400, anticipating that the upcoming fourth-quarter order data will significantly exceed market expectations.

Market focus is shifting from merely scrutinizing current earnings to assessing longer-term growth potential. Analysts at Morgan Stanley predict that ASML's fourth-quarter order bookings could reach a substantial €7.27 billion, far surpassing the previous market expectation of around €5 billion. Analysts note that the market has largely priced in expectations for moderate growth in 2026, and the investment rationale is now rapidly turning towards 2027, which is projected to be a pivotal year for ASML's full-scale earnings breakout, with revenue potentially surging by 28% year-over-year.

This optimistic outlook finds strong support in the capital expenditure plans of downstream chip manufacturers. As demand for AI-related cloud services skyrockets and memory chip shortages drive prices higher, key customers including TSMC, Samsung, and SK Hynix are planning substantial increases in capital expenditure for 2026 to ramp up production capacity. As the core supplier of lithography systems, ASML stands to benefit directly from this investment frenzy aimed at securing future supremacy in computing power.

ASML's pivotal role in the supply chain stems from its exclusive control over Extreme Ultraviolet (EUV) technology. EUV lithography machines utilize an incredibly thin beam of light—just 13.5 nanometers thick, compared to a human hair's diameter of 80,000 to 100,000 nanometers—to print minuscule circuits onto silicon wafers. This sophisticated equipment is essential for producing the high-end microprocessors designed by companies like NVIDIA.

John West from semiconductor consulting firm Yole Group points out that in the EUV domain, ASML is "the only player in town." Analyst estimates suggest that ASML commands approximately 90% of the lithography systems market with its high-throughput machines and is the sole manufacturer of EUV technology, a process where tin droplets are vaporized by a laser 50,000 times per second to generate the required light source.

This technological monopoly enables ASML to ride the coattails of chip design giant NVIDIA, capturing a share of the trillions of dollars in value created by the global AI arms race. Although it faces competition from Nikon, Canon, and China's SMEE in the lower-end Deep Ultraviolet (DUV) market, experts believe ASML's dominance in the advanced chip sector will remain largely unshaken for years to come.

In response to the explosive demand for AI chips, major global chip manufacturers are significantly ramping up their capital expenditures, a trend that directly benefits ASML. Analysts estimate that roughly a quarter of a chipmaker's capital expenditure is allocated to lithography equipment, a proportion that could be even higher for AI chips.

According to Reuters, citing LSEG data and analyst estimates, the major manufacturers' expenditure plans for 2026 are as follows:

TSMC: As ASML's largest customer, plans a 37% increase in capital expenditure to $56 billion.

Samsung: Expected to increase spending by 24% to $40 billion.

SK Hynix: Plans a 25% increase to $22 billion.

Micron: Plans a substantial 45% increase to $20 billion.

This trend is further fueled by robust demand from companies like Apple, Google, and Broadcom. Mizuho analyst Kevin Wang also notes that growth in Chinese business is anticipated in 2026. Dan Hutcheson, a senior analyst at TechInsights, aptly analogizes that for a chip industry investing billions in adopting ASML's tools, switching suppliers would be like changing a Formula One car's engine mid-race—an extremely high-risk endeavor.

Analysis from Morgan Stanley indicates that while market expectations for 2026 are centered on approximately 10% revenue growth and stable gross margins around 52.5%, the real investment opportunity lies in 2027.

The bank forecasts that, driven by three key factors, demand for EUV equipment could reach 80 units in 2027, propelling revenue to €46.769 billion and boosting gross margins to 56%. These drivers include the earlier-than-expected capacity expansion for TSMC's A14 process node, a massive catch-up investment wave from DRAM manufacturers, and a recovery in demand from logic chip makers like Intel and Samsung.

However, this explosive growth also brings potential supply bottlenecks. ASML's current cleanroom space is aligned with a production capacity target of approximately 90 Low-Numerical Aperture (Low-NA) EUV units by the end of 2027. If demand truly surges to 80 units as projected, the capacity buffer would be extremely tight. Analysts warn that due to technical constraints, ASML cannot simply convert DUV production lines to EUV; surpassing an annual capacity of 100 units would necessitate building new cleanrooms, a process requiring significant time and capital investment.

It is noteworthy that the upcoming earnings report will be ASML's final disclosure of quarterly order bookings. Starting next quarter, the company will only provide annual updates on its order backlog, making the order data revealed this time particularly crucial for investors gauging future trends.