The artificial intelligence (AI) boom is pushing the semiconductor industry into a prolonged capacity crunch, with ASML warning that demand for its chipmaking equipment will exceed supply through 2028. The bottleneck, however, could be a bullish signal for semiconductor capital spending, as chipmakers race to expand production capacity.
Reuters reported that the Dutch company, the world's leading supplier of equipment used to manufacture advanced semiconductors, said on Wednesday that customers were already looking beyond 2027, with some seeking to secure orders for 2029 and 2030.
The demand surge reflects the rapid expansion of AI infrastructure and data centres, which has prompted major chipmakers, including Taiwan Semiconductor Manufacturing Company (TSMC), Samsung Electronics and Intel, to ramp up investments. TSMC manufactures chips for Nvidia, while SK Hynix and Micron are also expanding capacity to capitalise on the AI opportunity.
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ASML shares have gained nearly 70% this year, reflecting investor optimism around sustained demand for advanced chipmaking equipment.
ASML had announced in July that it planned to increase production capacity by 30% in 2027 and another 30% in 2028. However, the latest demand outlook suggests that even these planned additions may not be sufficient.
"We're seeing a lot of order intake for 2028. But also some strong interest to already place orders for 2029 and sometimes even 2030," Chief Executive Officer Christophe Fouquet said, according to Reuters.
The company is exploring ways to expand capacity further, including upgrading existing equipment and introducing newer machines capable of processing more wafers. These measures would provide "a significant enhancement to our customers' capacity", Chief Financial Officer Roger Dassen said.
ASML has also broken ground on a major expansion in Eindhoven, the Netherlands, with the first phase expected to be completed in 2029. The company will need interim solutions to meet customer requirements before the new facility comes online.
The supply constraints come alongside an improved sales outlook. ASML now expects fourth-quarter sales of €14.2 billion to €15.2 billion, above analyst forecasts, with a gross margin of around 57%.
The company raised the lower end of its full-year sales forecast, projecting revenue of €44 billion to €45 billion.
For the third quarter, ASML reported net profit of €4.96 billion on net sales of €11.7 billion. Profit exceeded the €4.05 billion expected by analysts polled by LSEG, while revenue was in line with expectations.
ASML also plans to increase prices from 2027, with the full impact expected to become visible in 2028. Its shares rose nearly 3% in early Amsterdam trading on Wednesday.
ING analyst Marc Hesselink said the results beat expectations and forecast that consensus earnings estimates could be revised upwards through 2028. He also described management's commentary on demand visibility and capacity as very constructive. The capacity crunch presents a potential upside for ASML: a strong order pipeline, better revenue visibility and scope for pricing gains. Yet the company must balance expansion with the risk of overcapacity once customers complete their new manufacturing facilities.
Nick Rossolillo of Chip Stock Investor, which owns ASML shares, said he was satisfied with the pace of capacity additions, provided the company continued expanding to meet customer demand.
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"Staying capacity constrained protects the business and gives a bit of cushion for when there are inevitable years of soft customer order activity," he said, pointing to the 2028-2029 period after several new customer plants are completed.
ASML is also assessing the potential opportunity from Elon Musk's TeraFab project, with Dassen saying the company was "still kicking the tyres on the exact size of that opportunity".
For investors, the central takeaway is that the semiconductor industry's AI-led investment cycle may extend well beyond the next few years. ASML's supply constraints underline both the scale of demand and the challenge of meeting it, making capacity expansion a critical theme for chip capital spending.
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