ASML's Advanced Packaging Move Amid AI Boom: Incremental Diversification Amid High Valuation Risks

What happened

ASML is expanding into advanced packaging for AI chips, aiming to enhance performance and speed as the AI chip arms race intensifies. This news comes after the stock surged 103% over the past year, driven by strong Q4'25 EUV bookings of €7.4B within a €13.2B total and a €38.8B backlog. However, the DeepValue report highlights that ASML's current valuation at 51.8x P/E and 40.3x EV/EBITDA prices in flawless execution of its core EUV-led growth, with key risks including customer capex delays and shipment timing slippage. The advanced packaging expansion is a strategic move but is minor compared to the dominant EUV business, which remains the primary driver of revenue and investor sentiment. Therefore, this development does not immediately alter the critical investment checks on EUV booking intensity and backlog conversion quality.

Implication

ASML's foray into advanced packaging could diversify revenue streams in the long term, leveraging AI demand beyond lithography. However, this move is unlikely to materially impact near-term financials, given the scale of the EUV business and ongoing operational bottlenecks. The stock's premium valuation relies on sustained EUV demand and smooth backlog conversion, with the DeepValue report warning that any deviation could lead to significant downside. Upcoming quarterly results must show EUV bookings remaining dominant and shipment cadence stable to justify current prices. Thus, investors should prioritize monitoring these core metrics over this news, maintaining a disciplined wait-and-see approach.

Thesis delta

ASML's expansion into advanced packaging does not fundamentally shift the investment thesis, which remains centered on EUV lithography performance and backlog conversion risks. The key monitors—EUV booking share and shipment timing—are unchanged, and this diversification is incremental rather than transformative. Therefore, the 'WAIT' rating and conviction level stand, as valuation still offers no margin of safety against potential execution missteps.