Eagle Capital Management, an investment management company, has published its second-quarter 2026 investor letter, a copy of which can be downloaded here. In the letter, the firm examined how enthusiasm around AI capital spending has driven strong S&P 500 earnings growth while simultaneously increasing risks stemming from elevated valuations, concentrated demand, and aggressive investment assumptions.

Eagle remains a strong believer in AI, but it prefers to construct a portfolio that can perform across multiple outcomes rather than relying on a single forecast. In the firm's view, current earnings can overstate underlying economics because semiconductor equipment is depreciated over several years, while free cash flow growth remains much weaker.

Eagle also expects competition and additional capacity across AI labs, hyperscalers, and the semiconductor industry eventually to create winners and losers. These dynamics are encouraging the firm to recycle capital toward attractive opportunities outside the most crowded AI trades while maintaining selective exposure to high-quality beneficiaries. The portfolio trades at a 20% market discount with faster expected EPS growth.

Within that portfolio, Eagle Capital Management highlighted ASML Holding N.V. (NASDAQ:ASML). The company provides lithography solutions for the development, production, marketing, sales, upgrading, and servicing of advanced semiconductor equipment systems. Headquartered in Veldhoven, the Netherlands, ASML is the only supplier of extreme ultraviolet (EUV) lithography machines, which are required for leading-edge chip manufacturing, and counts the world's leading chipmakers, including TSMC, Samsung, and Intel, among its customers. EUV tools use ultra-short-wavelength light to print the microscopic circuit patterns that define the most advanced chips, and they rank among the most complex and expensive pieces of equipment in semiconductor fabrication, with reported unit prices running into the hundreds of millions of dollars. ASML's longtime lithography rivals Nikon and Canon, which compete in older deep-ultraviolet technologies, have never brought EUV systems to market, which is what underpins Eagle's description of the company's monopoly position.

On August 18, 2026, ASML closed at $1,802.98 per share, edging down 0.08%. The stock's one-month return was 0.06%, and its shares gained 140.56% over the past 52 weeks. ASML has a market capitalization of $682.12 billion.

Eagle Capital Management stated the following regarding ASML in its Q2 2026 investor letter:

"Half of our capital here is invested in TSMC and ASML Holding N.V. (NASDAQ:ASML), two of the most dominant businesses in the semiconductor supply chain. The other half is invested across the three major hyperscalers. We ascribe a portion of the value of each of these three companies to their cloud business and the balance to the remainder of the company; i.e., 60% of the value of Amazon is from AWS and 40% is from retail. TSMC and ASML are two of the best businesses in the semiconductor industry. ASML has a monopoly in extreme ultraviolet lithography ("EUV"), which is required for leading-edge semiconductor manufacturing. Both companies are well positioned over the next 5-10 years to participate in the sector's secular growth while maintaining their competitive positions. That said, they will face pressures when the next downturn comes.

As previously discussed, we think the hyperscalers have wide competitive advantages over neoclouds. Earnings have accelerated as the companies have significantly increased data center capex. Our central case is that they will provide control-plane solutions that let customers choose among AI models and capabilities, and that AI will diffuse broadly enough to mitigate, but not eliminate, customer concentration risk with Anthropic and OpenAI. Returns on capital should still be attractive, albeit not as high as before. Earnings growth and earnings should be much higher in the coming years given the magnitude of the investment and opportunity. We expect EPS growth of 15-20% over the next several years."

The letter's pairing of TSMC and ASML mirrors the structure of leading-edge chipmaking itself: the most advanced chips are fabricated on TSMC production lines that use ASML's EUV tools, placing the two companies at adjacent points of the supply chain that AI data centers draw on. Eagle's caveat about the next downturn likewise reflects the semiconductor equipment industry's well-documented cyclicality, in which tool orders have historically risen and fallen with chipmakers' capacity investment cycles — the same dynamic behind the firm's caution about extrapolating today's elevated AI capital spending. Among the variables the letter itself emphasizes are the trajectory of hyperscaler data center capex and whether AI adoption diffuses broadly enough to offset customer concentration around Anthropic and OpenAI.

ASML also appears on Insider Monkey's list of the 40 Most Popular Stocks Among Hedge Funds. According to that database, 133 hedge fund portfolios held ASML at the end of the first quarter, up from 101 in the previous quarter.

Disclosure: None. This article was originally published at Insider Monkey and syndicated via Yahoo Finance.