Sean Sharpe
Catalyst Swing Trader, Author of Stocks in Play Newsletter
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.comÂ
ASML's reported inability to make enough machines for the next two years is a buy signal for the whole AI stack. Its stock still sold off despite that shortage. x.comÂ
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.comÂ
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.comÂ
Rising AI equipment demand could sustain the buildout behind Micron, Nebius, Marvell, Bloom Energy and Applied Optoelectronics. ASML says customers are raising short- and medium-term forecasts, some are interested in orders for 2029 or 2030, and its currently planned 2027-28 supply may not fully meet demand. The dip in these AI stocks might be a buying opportunity. x.comÂ
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.comÂ
ASML may have topped, since semicap thrives on shortage and would be hit hardest in an overbuild. Then earnings acceleration from memory and fab projects stops or reverses; the labs' leading-edge chase may be at its apex, positioning is bullish and the moat is threatened. Bullishness on Korean, US and Taiwan fab projects makes sense for now. But if the cycle top is confirmed and labs change how they chase the frontier, or token deflation kills some labs, the shortage can end sooner. x.com x.com … Show more
ASML's growth path loses momentum on news that TSMC can make some chips without ASML's machines. x.comÂ
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.comÂ
ASML has yet to fall despite losing its biggest customer, TSMC, until 2029, a customer responsible for 70% of its revenue. That disconnect reflects the current state of the chip bubble. x.comÂ