This Monopoly Stock Keeps Getting Stronger

Key Concepts

• ASML: A Dutch company that manufactures photolithography machines essential for semiconductor production, holding a near-monopoly in Extreme Ultraviolet (EUV) lithography.
• EUV Lithography: A highly advanced semiconductor manufacturing technique used to create smaller and more powerful microchips.
• Install Base Management: The services and maintenance provided by ASML for its installed machines, a critical and growing revenue segment.
• AI Bubble: The debate surrounding whether current high valuations in AI-related stocks are sustainable or indicative of an unsustainable market bubble.
• Agentic Commerce: A new paradigm where AI agents can directly interact with e-commerce platforms and services on behalf of users.
• Waymo: Google's self-driving technology company, expanding its autonomous ride-hailing services.
• Salesforce: A customer relationship management (CRM) software company facing market skepticism regarding its AI integration and future growth.

ASML Earnings and Investment Outlook

ASML, a company known for its monopolistic position in manufacturing complex semiconductor devices, recently reported earnings, leading to a 3% stock increase, pushing it back above $1,000 per share. Management's tone has shifted to a more optimistic outlook compared to the previous quarter.

ASML's Business Model and Competitive Moat

ASML's dominance stems from its unparalleled technological supremacy in producing incredibly complex devices, described as more intricate than rocket ships or satellites. This technological lead is virtually impossible for competitors to replicate, even with state-funded efforts like China's. Beyond its technology, ASML's monopoly is reinforced by its exclusive agreements with suppliers and its long-term partnerships with its customers, creating a formidable distribution moat. Disrupting ASML would require a monumental and likely unsuccessful effort due to the immense capital, time, and energy involved.

Investment Thesis and Performance

The author's investment in ASML is based on its wide moat, strong economics, consistent cash flow generation, share buybacks, and a long-term focused management team with predictable growth. The current position is an $87,000 investment with $24,000 in gains, representing a relatively new and exceptionally well-performing holding.

Reaction to Previous Earnings and Current Performance

Following the July earnings report, ASML's stock tumbled to around $730 per share due to management warnings about tariffs and restrictions impacting growth confirmation for 2026. The author viewed this sell-off as an opportunity, adding to the position. The most recent earnings report saw a significant 38% increase in share price within a single quarter, reaching over $1,000 per share. The author considers this surge warranted, not a cause for concern.

Key Financials and Growth Drivers

• Q3 2025 Net Sales: Reported at $7.5 billion, within guidance. While revenue can be lumpy, ASML secures contracts that ensure future collection.
• Install Base Management: This segment, representing services and maintenance for installed machines, is highlighted as a critical and underrated growth driver. The author emphasizes its importance for ensuring 100% uptime for ASML's mission-critical machines, where downtime can cost customers millions.
  • Growth Trend: Install base management sales have shown consistent growth. When viewed over a trailing 12-month period, this segment grew by 39.75% in the most recent quarter. The author projects continued growth above 20%.
• Share Repurchases: ASML repurchased $148 million worth of shares (9 million shares) for a total of $5.9 billion. Management is noted for buying back shares during the dip, demonstrating strong capital allocation.
• Future Buyback Program: The current $12 billion buyback program is unlikely to be completed by the end of 2025, with a new program expected in January 2026. This suggests management may be tempering buybacks due to the recent stock surge, indicating prudent capital management.

Management's 2026 Guidance and Market Reaction

ASML management stated that full 2026 guidance will be provided in January, but early signals indicate that aggregate sales next year will not be below 2025 levels. This is interpreted as a confirmation of growth for 2026, a stark contrast to the previous quarter's uncertainty that led to a stock sell-off. The author argues that the previous sell-off was based on superficial reasons and slight verbiage changes, as management is essentially reiterating the same positive outlook. The 38% surge in stock price demonstrates the market's positive reaction to this rephrased guidance.

Author's Conclusion on ASML

The author remains bullish on ASML, seeing no weaknesses. The company's moat is widening, customer base is diversifying, install-based management is growing, and demand for its products remains incredibly strong with orders extending years in advance. The company's ability to hold cash for potential dips and buy back shares provides downside protection. The author intends to continue holding and adding to the position on any dips.

Brad Gersonner on the AI Bubble and Investment Opportunities

Tech investor Brad Gersonner discussed the current market sentiment, particularly concerning an "AI bubble," in a CNBC interview.

The "AI Bubble" Argument

Gersonner's initial argument against an AI bubble was that a true bubble rarely occurs when the topic is widely discussed and people are writing books about it. He cited Paul Tudor Jones's comparison to October 1999, where the market still had significant upside.

Counterarguments to Gersonner's Bubble Thesis

The author challenges Gersonner's argument, stating that historical bubbles have always involved widespread discussion and recognition of irrational exuberance.

• Historical Precedent: Research institutions like Bernstein Research called the dot-com bubble in 1999, and many professional investors during that era acknowledged the "madness" but played the momentum game.
• Howard Marks's View: Howard Marks, a prominent investor, has written about bubbles before they pop and does not subscribe to the idea that widespread discussion negates a bubble.
• Capitulation: Bubbles often lead to capitulation, where investors who resisted initially join in due to the fear of missing out on massive gains, as seen in the 2021 bubble with companies like Zoom and those in Cathie Wood's ARK Invest ETFs.
• Timing of Tops: A bubble's top is often reached when the last hesitant buyer enters the market, with no one left to drive prices higher. This is driven by human psychology rather than fundamental developments.

Valuations and Selective Bias

While Gersonner acknowledges that some valuations are unreasonable, he uses Nvidia (trading at a forward PE of 25-30 times) as an example of a company not exhibiting bubble-like characteristics. The author points out a selective bias in this argument, suggesting that Palantir, a company with a 540 trailing PE and a price-to-sales ratio above 100 (117), presents a much stronger case for an inflated valuation, even compared to the dot-com bubble. The author argues that Palantir's valuation is significantly harder to defend based on fundamentals alone.

Gersonner's Core Message on AI

Despite the bubble debate, Gersonner emphasizes that AI is a real and transformative technology, comparable to the internet. He advises investors to focus on the developments of AI and identify sensible investment opportunities, rather than getting caught up in hand-wringing about potential bubbles. He suggests that navigating bubbles involves avoiding exuberantly priced companies and maintaining a diversified portfolio.

Agentic Commerce: The Next Frontier

Mark Mahaney, a favored analyst, discusses "agentic commerce," a concept emerging from OpenAI's new API integrations.

OpenAI's Integrations

OpenAI is enabling top websites like Uber, Booking Holdings, Expedia, and Walmart to integrate directly within ChatGPT. This allows users to perform actions like booking an Uber or making travel arrangements without leaving the ChatGPT interface.

Impact on the Market

Mahaney believes this integration will not necessarily disrupt these companies but will instead expand their total addressable market and reduce customer acquisition costs. He likens it to building a user base and engagement, with monetization potentially coming later, similar to how Mark Zuckerberg built Facebook. He predicts this could dramatically change the internet and tech landscape within the next two to three years.

Becoming More Agentic

The core idea is that companies across various sectors (Spotify, Netflix, Uber, Amazon) are striving to make their shopping experiences more "agentic," meaning more automated and driven by AI agents acting on behalf of the user.

Waymo's Expansion to London

Google's self-driving technology company, Waymo, is expanding its operations by launching its fully autonomous ride-hailing service in London in 2026. This marks a significant international expansion for the company. Waymo aims to offer rides with no human drivers behind the wheel, integrating with London's existing public transportation network. The company's independent app is a key advantage, allowing them to operate without needing partnerships with existing ride-hailing platforms.

Salesforce and Market Sentiment

Salesforce has been experiencing significant negative market sentiment, with investors viewing it as antiquated and at risk from AI disruption.

Partnership with OpenAI and Market Reaction

Despite announcing an expansion of its AI partnership with OpenAI and Anthropic, integrating their latest models into Agent Force 360, Salesforce's stock declined. This is unusual, as similar partnerships with OpenAI have typically led to stock price increases. The author describes this as an "impossible" outcome, highlighting the extreme negative sentiment surrounding the company.

Reasons for Negative Sentiment

The primary reason for this sentiment is the perception that Salesforce is an antiquated software company vulnerable to AI disruption. Investors are not convinced that Salesforce can maintain rapid growth for an extended period.

Future Outlook for Salesforce

The author suggests that consistent positive quarterly reports, demonstrating continued growth, cash flow generation, and fundamental improvements, are necessary to shift investor sentiment. The author personally holds Salesforce shares and will continue to do so as long as the fundamentals remain positive.