ASML (ASML) Q1 2026 earnings review
AI Hyper-Cycle Solidifies 2026 Growth Despite Geopolitical Clouds
ASML delivered a highly reassuring Q1 2026, posting €8.8B in revenue and a 53.0% gross margin—hitting the top end of its guidance. The big story, however, is the full-year 2026 guidance. Management finally quantified its outlook, projecting €36B to €40B in revenue. This ~16% implied YoY growth puts to rest the macro-driven uncertainty that haunted the company in mid-2025. Surging AI infrastructure demand is forcing chipmakers to pull forward capacity, easily offsetting the deliberate structural decline in Chinese DUV orders. While margins are guided to dip slightly in Q2 and cash flow turned negative due to working capital swings, the underlying demand trajectory is incredibly robust.
🐂 Bull Case
Customers are accelerating capacity expansions for 2026 and beyond due to AI chip demand outpacing supply. This tangible order strength allowed ASML to finally quantify FY26 revenue at €36B-€40B, representing strong double-digit growth.
Installed Base Management (IBM) sales jumped to €2.49B, up from €2.13B in 25Q4. As the EUV fleet expands, this high-margin recurring revenue stream is growing rapidly and providing vital earnings stability.
🐻 Bear Case
The unusually wide €4 billion bandwidth for the FY26 revenue guidance explicitly exists to accommodate 'potential outcomes of ongoing discussions around export controls.' The geopolitical ceiling on ASML's addressable market remains a risk.
Operating Cash Flow collapsed to negative €2.18B in Q1, a massive reversal from the €11.4B generated in 25Q4. While likely driven by working capital timing and tax/dividend outflows, it requires immediate scrutiny.
⚖️ Verdict: 🟢
Bullish. The definitive, high-growth €36B-€40B guidance for FY26 completely overshadows lingering geopolitical headwinds. ASML is successfully transitioning from a China-heavy DUV backlog to a structurally healthier, AI-driven EUV growth phase.
Key Themes
AI Infrastructure Demand Erases 2026 Uncertainty
In mid-2025, management was 'unable to confirm' 2026 growth due to tariff and macro uncertainty. In Q1 2026, the tone has entirely reversed. Management stated that the growth outlook continues to 'solidify' as AI infrastructure demand forces customers to accelerate capacity expansion plans. This translates to an expected €36B-€40B in FY26 revenue.
China Normalization is Complete
As telegraphed in 2025, the outsized revenue contribution from China is rapidly shrinking. China accounted for just 19% of net system sales in 26Q1, down drastically from 36% in 25Q4 and 42% in 25Q2. ASML is successfully rotating its revenue base back to leading-edge nodes in Taiwan (23%) and South Korea (45%), which are immune to these specific DUV export curbs.
NXE:3800E Throughput Upgrade (PEP-E)
ASML officially released the Productivity Enhancement Package (PEP-E) for the NXE:3800E, increasing throughput from 220 to 230 wafers per hour (WpH) at similar overlay. Continuous incremental improvements to tool productivity justify higher ASPs and incentivize customers to purchase upgrades, directly fueling the €2.5B in Q1 Installed Base Management sales.
Export Controls Dictate Guidance Bandwidth
While ASML gave firm FY26 guidance, management specifically noted that the unusually wide €4 billion gap between the low end (€36B) and high end (€40B) of the range is designed to 'accommodate potential outcomes of ongoing discussions around export controls.' This proves that regulatory intervention remains an active, unquantifiable headwind to the top line.
Other KPIs
Reversing. In a massive divergence from Net Income (€2.76B), operating cash flow plunged into negative territory (-€2.19B) compared to +€11.4B in the prior quarter. This dramatic €13.6B sequential swing is a red flag likely tied to massive working capital movements—such as the reversal of customer down-payments, inventory build-ups, or seasonal tax/bonus payouts—but requires urgent clarification from management.
Accelerating. Memory jumped to 51% of system sales in Q1, up violently from 30% in Q4. This reflects intense capacity expansion by DRAM manufacturers racing to supply High Bandwidth Memory (HBM) for AI accelerators, effectively carrying the volume load as Logic node transitions undergo timing lumpiness.
Stable. Gross margin hit the top end of management's 51-53% guidance and expanded sequentially from 52.2% in 25Q4. Achieving this despite the severe drop in high-margin China DUV sales highlights the immense profitability of the EUV fleet and the thriving Installed Base upgrade cycle.
Guidance
Accelerating. With 2025 net sales ending at ~€32.7B, the FY26 midpoint of €38.0B implies strong ~16% YoY growth. This signals that the long-anticipated AI capacity build-out has translated into firm orders.
Stable. This represents a flat trajectory compared to 2025's actual gross margin of 52.8%. The lack of margin expansion despite 16% revenue growth implies margin dilution from the introduction of early High-NA systems and the loss of lucrative China DUV mix.
Stable. The midpoint of €8.7B implies practically flat sequential growth compared to Q1's €8.77B. Included in this is an expected €2.5B from Installed Base Management, matching Q1 levels.
Decelerating. A step down from Q1's 53.0%. This sequential margin compression is likely a function of specific tool delivery mix (more High-NA or fewer high-margin upgrades) slated for the second quarter.
Key Questions
Operating Cash Flow Collapse
Operating cash flow swung violently from +€11.4B in Q4 to -€2.19B in Q1, diverging entirely from Net Income. What were the specific working capital dynamics (e.g., customer down-payment reversals, inventory builds) driving this, and when will cash generation normalize?
Export Control Scenarios
You explicitly stated the €4 billion bandwidth in the FY26 revenue guidance accommodates 'ongoing discussions around export controls.' What is the worst-case scenario currently factored into the €36B bottom end of that range?
Memory Mix Sustainability
Memory surged to 51% of system sales this quarter. How much of this is a structural pull-forward for HBM capacity versus traditional DRAM, and do you expect Memory to maintain this elevated share through the rest of 2026?
Q2 Margin Compression
Despite strong capacity demand, Q2 gross margin is guided down sequentially to 51-52% from 53.0%. What are the specific mix headwinds causing this compression in the upcoming quarter?