The global AI boom has propelled Dutch company ASML to the top of the European stock market, as surging demand for computing chips used in AI applications flows to the Dutch company that dominates the market for equipment to manufacture these chips.

After announcing record second-quarter results, investors and analysts have begun asking a question that once seemed far-fetched: Could ASML become the first European company to surpass the $1 trillion market value threshold?

The main obstacles to this scenario are whether tech giants like Google and Amazon, along with other data center operators, will continue heavy infrastructure spending, as well as the ability of ASML, its suppliers, and customers—including TSMC and Samsung—to execute ambitious expansion plans, according to Reuters.

But after ASML's shares rose 60 percent since the start of the year, lifting the company's market capitalization to around $700 billion, investors and analysts see reaching a $1 trillion valuation as a realistic possibility.

Caroline Bell, lead portfolio manager of the Global Best Ideas fund at Stonehage Fleming, said: 'I think it has a very good chance to be the first company in Europe to reach a trillion dollars,' noting that ASML represents about 8 percent of her portfolio.

She added: 'But I don't know when that will happen.'

The trillion-dollar question

Recent updates to analyst forecasts following the second-quarter results indicate that this scenario is no longer just a distant aspiration. Institutions such as Barclays, Susquehanna, and Bernstein have set 12-month price targets for the stock above $2,600, a level about 49 percent above current prices and close to the threshold needed to reach a $1 trillion market value.

ASML is the only company in the world capable of producing extreme ultraviolet lithography systems, the essential technology for manufacturing the microcircuits used in the latest processing and memory chips.

Investors liken the company's role to that of 'pick and shovel' sellers during a gold rush; it provides the essential tools for companies benefiting from the AI boom.

John Lamb of Capital Group, whose funds own about 5 percent of ASML shares valued at $35 billion, praised the company as a long-term investment, thanks to its 'unique assets and strong competitive advantage.'

He said: 'The fundamentals of the entire industry seem stronger than ever, and ASML occupies a very important position within it.'

ASML has already surpassed major European companies such as Roche, LVMH, Novo Nordisk, AstraZeneca, and SAP, and now significantly outperforms them in market value.

A 'Groq 3' chip from Nvidia at the company's GTC conference in San Jose, California (Reuters)

New upgrade cycle supports growth

ASML's stock is currently trading at a price-to-earnings ratio of 38 times expected earnings for 2027, according to London Stock Exchange Group data, a level significantly higher than the P/E ratio of TSMC, ASML's largest customer, which manufactures the AI chips designed by Nvidia and used by companies such as OpenAI, Anthropic, and major cloud computing firms.

Investors and analysts believe that justifying this high valuation requires several factors to materialize, most notably continued strong demand from giant cloud computing companies.

Trent Masters of Alphinity Investment Management, which allocates about 3 percent of its portfolio to ASML, warned that 'any slowdown in this demand would negatively impact the company's earnings.'

He added that other risks include ASML's ability to manage its supply chain and navigate geopolitical tensions, though he said he is 'very optimistic' about the company's prospects.

ASML also faces risks related to trade restrictions, after US lawmakers proposed the 'MATCH' Act, which could impose restrictions on the company's sales and equipment services in China, a market that ASML expects to account for about 20 percent of its sales by 2026.

But analysts have pointed to other factors that could support the company's continued growth, even if the AI momentum slows.

Kingai Chan of SemiInsights said that AI memory chip manufacturers such as SK Hynix, Samsung, and Micron are shifting their production from older technologies that use ASML's deep ultraviolet lithography tools to the newer, more expensive extreme ultraviolet systems, creating a profitable 'upgrade cycle' for the company.

Mark Hesling, an analyst at ING, said that ASML could certainly become the first European company to exceed a $1 trillion market value.

New demand for chips may also add growth sources; the new 'Terafab' plant that Elon Musk plans to build in Texas to supply SpaceX and Tesla represents a new revenue opportunity for ASML.

Antoine Hauser of Aviva Investors said that ASML's success in executing its strategy and continued demand for AI technologies could drive the company to continue growing, though there are no guarantees.

He added: 'ASML could become the first European company to reach a market value of $1 trillion. But recent volatility in AI stocks shows that the path to this achievement will not be easy.'

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