Pythia Cap
Equity Investing & Market Satire
China's homegrown DUV tool poses little threat to ASML because it remains almost 20 years behind. Per the Financial Times description, the immersion DUV system SMIC is testing resembles ASML's 2008 NXT:1950i for 32nm-class processes, and having a tool doesn't mean matching defect rates or throughput, as Canon and Nikon show. China has stayed roughly 20 years behind for a decade and is not meaningfully accelerating against ASML. x.com x.com x.com x.com x.com x.com
ASML's monopoly lets it raise prices on customers lacking an alternative. TSMC must accept EUV price hikes because quad-patterning DUV is also getting pricier and its customers demand capacity; memory makers are worse off since ASML can play the three off for slot reservations. ASML is taking about 10% price across the board, and consensus is woefully light on service and upgrade revenue, where EUV offers ~2x DUV's opportunity on a higher ASP. Sandbagged 2030 targets could be beaten in 2028.
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ASML remains the undisputed lithography champion because DUV and EUV scarcity will ultimately be the real bottleneck to scaling AI compute. Wall Street sold semicap on a Shanghai firm building five 2008-vintage DUV tools, which threaten approximately none of ASML's moat this decade. Meanwhile, Situational Awareness put $500 million into Source Foundry, a startup aiming to break ASML's monopoly by redesigning chip manufacturing. Whoever breaks that monopoly wins, but it is a tough race. x.com
ASML's fears about Chinese competition are noise: China's claim to compete rests on 20-year-old DUV tools, while nobody else has ASML's EUV machines. ASML is a trillion-dollar monopoly with a 20-year head start, so there is no real competition. The broader tech selloff reflects worries such as Nvidia backstopping OpenAI's buildout and open-weight models like Kimi K3, which are more noise than signal; even good open models need massive infrastructure. x.com
ASML could break down from here on the China news. x.com
ASML's 6% drop on a report of Chinese immersion DUV mass production is no cause for panic. Per a Chinese semiconductor expert, the first-gen tool is five or six generations behind ASML's 1980-class machines, which Chinese fabs already stockpile, and SMEE's six dry DUV tools sold in 2023 never ran production. No Western fab is likely to qualify a Huawei-linked tool, the lost revenue was already exiting under export controls, and lithography isn't China's binding constraint. x.com x.com
ASML's EUV R&D is starting to pay off through operating leverage. Q3 R&D fell as a share of sales, though one quarter is not a trend. Higher units, IBM sales and EUV/DUV prices put 2028 estimates well above the 2030 guide and ahead of consensus; shares look cheap at €1,530. Assuming 30% prepayment, liabilities imply €42-45bn of orders in 2026's first nine months, subject to invoicing lags. The proposed MATCH Act could restrict China sales; 2029-30 demand is less certain than 2028. x.com x.com … Show more
ASML faces moat erosion now that China has a homegrown alternative to its machines. The Information reports a state-backed Shanghai company has started mass-producing DUV lithography tools. Chinese fabs stockpiling older DUV tools had become a major revenue driver, with China at 36% of sales in 2024 and 29% last year. Output is tiny, about five machines this year and maybe twenty next. But once a second supplier exists, the question shifts from "no alternative" to "for how long." x.com
The selloff in ASML and BESI on China's new immersion DUV tools is an overreaction with minimal real impact. China plans five units this year and 20 in 2027 for SMIC, Hua Hong and CXMT, under 4% of ASML's roughly 130 annual immersion DUV shipments. DUV can make 7nm chips via multi-patterning, but at higher cost, lower capacity and more alignment errors, and EUV is a fundamentally different technology. Nikon and Canon face the most pressure. x.com
Requests for ASML lithography-tool slots as far out as 2030 signal years of locked-in downstream AI infrastructure spending plans. ASML's machines come before the chips, making those customer requests a clearer early demand signal than chip headlines. x.com
China's entry into chip design and fabrication is a structural change: stop fading China as Western AI chip and cloud leaders get steeply discounted. China dominates nearly every manufacturing category; with multi-patterning its DUV tools perform near newer nodes and could scale massively or reach EUV. Chinese open models co-designed for Chinese chips could pull sovereignty-minded countries onto its tech stack. As Ford fared after China joined the WTO, so may Nvidia, ASML, TSMC and AWS by 2050. … Show more
ASML's EUV moat is hard to replicate because making EUV light is only one part of a production tool: sustained fab uptime matters, and Zeiss optics are the harder moat. Langdao Silex showed a Chinese light source with 90% local components but disclosed no power figure. ASML's production sources run at about 600W; its February demo reached 1,000W with a path to 1,500W. Langdao staff put mass production three to five years away. x.com
