Will ASML Finally Charge for Its Value?
Management hints ASML starts charging for value in 2027. Consensus says it won't.
ASML is an earned monopoly. So is TSMC.
That makes pricing complicated; it’s not simply “charge whatever you want”. You have to know what your product is worth to the customer (that alone can be hard to measure) and then decide how much of that to take. Take too little, and you’re leaving shareholders’ money on the table. Take too much, and you’ll anger customers and incentivize competition. And regulators start paying attention...
TSMC historically played it safe, erring on the side of undercharging. In return, they had happy customers with no reason to seek an alternative. That’s changing.
TSMC is raising prices. It’s part of their strategy; colloquially, “selling our value”. This “selling our value” is listed among their six profitability factors. Of course, TSMC prefers not to explicitly talk about raising prices; for example, the last call pointed to improved utilization and reduced costs for margin gains. We are better at manufacturing, and that’s why margins are up. Of course, gross margin rose 9.1 points, and manufacturing performance explained 3.2 of those points. The other 5.9 points? Pricing. Highly recommend you read more here.
So what about ASML?
As an earned monopolist, do they approach pricing like TSMC?
Yes and no. Both call it value-based pricing, and ASML says so in those words. But ASML measures that value with a much narrower yardstick, and unlike TSMC, it’s happy to discuss the whole thing on an earnings call.
So, buy or sell?
Well, will ASML start charging for value?
Management spent this quarter hinting that it will. Consensus assumes it won’t — and the way the street has 2027 modeled, ASML’s customers end up paying less per wafer of capacity than they do today. That has never happened…
Here’s what this article will cover.
How to model ASML.
Does ASML charge for its value?
What’s changing. April: “not the way we do business.” July: “more flexibility for pricing.”
ASML vs TSMC.
Four things that lift 2027 revenue.
Price per unit of capacity. The 2027 decline consensus is implicitly forecasting.
So is it cheap? What 2027 looks like if the ASP moves, what it looks like if it doesn’t, and what today’s price already assumes.
What breaks it. Three risks.
So: does ASML start charging for that value, or doesn’t it? Below is how I’d answer that, and what each answer is worth at today’s price.