ASML Shares: A Record Rally Faces Valuation Scrutiny

Shares of ASML, a cornerstone of the semiconductor equipment sector, have been among the top performers in 2025, powering to successive record highs. However, a growing divergence is emerging between the stock's meteoric price action and its fundamental valuation, leaving investors to weigh the sustainability of its advance.

Following a rally of nearly 35% since the start of the year, the equity's price is increasingly decoupling from traditional valuation metrics. Current analysis points to a potentially overheated market. According to a discounted cash flow (DCF) model, the intrinsic value of ASML stock is calculated at approximately €704. When set against Friday's closing price of €922, this suggests a theoretical overvaluation exceeding 30%.

Market observers note a more nuanced picture emerges from the price-to-earnings (P/E) ratio. Trading at a multiple between 38 and 40 times earnings, ASML commands a significant premium, yet it remains within range of the average for US semiconductor companies, which stands at 37x. Some growth-adjusted models even argue that a P/E ratio as high as 43 could be justified given the company's expansion trajectory.

Management Counters with a "Long-Term AI Arms Race"

Providing a fundamental counter-narrative to these warnings, CEO Christophe Fouquet recently framed the global investment in artificial intelligence as a sustained "arms race," not a one-time cycle. He emphasized that advancing AI capabilities will necessitate new chip generations every two to three years. This dynamic, ASML believes, will create enduring demand for its extreme ultraviolet (EUV) lithography systems, where the firm holds a monopolistic position.

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The company's management also projects a more robust outlook for China than many analysts, despite ongoing export controls. Demand from the region remains a resilient component of ASML's order book, driven by the country's determination to remain at the technological forefront.

Speculation Swirls Around a Potential Stock Split

With the share price reaching a high nominal level, market chatter is increasing about the possibility of a stock split. The last such action was undertaken back in 2007. Several analysts have pinpointed 2026 as a potential window for this move, which would make the shares more accessible to retail investors and broaden the shareholder base. ASML, with a market capitalization surpassing $418 billion, is undeniably an industry heavyweight.

For the current fiscal year 2025, ASML has guided for revenue growth of about 15%. In the near term, however, the stock is caught between the powerful narrative of AI-driven growth and the gravitational pull of its lofty valuation multiples. The possibility of a pullback toward its calculated fair value must be considered by investors, especially after Friday's 3.42% decline. Any moderation in growth expectations, however slight, could make this scenario more likely.