Thierry from arvy
CFA, Co-Founder & CIO of arvy, Quality Investing
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
ASML could break down from here on the China news. x.com
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.com
ASML's selloff on China's domestic DUV news is an overreaction because the revenue hit is small and China is nowhere on EUV, ASML's real moat. China is making about five DUV machines this year versus the hundreds ASML delivers. BofA, which also calls the selloff an overreaction, estimates China going domestic cuts ASML's sales by about EUR 1.4B next year, or 2.4%, yet the stock fell about 6%. It helps China's chip independence far down the road but leaves ASML oversold today. x.com x.com
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 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.com
ASML cannot make enough EUV machines to meet demand, which it says will outrun supply through 2028. Its 2026 sales guide rose from €34-39 billion to €44-45 billion, and gross margin hit 57.5%. The combination of an EUV monopoly, demand outrunning supply and growing pricing power is rare. x.com
ASML's growth path loses momentum on news that TSMC can make some chips without ASML's machines. 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
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
European politicians and regulators slowing down ASML is one of the most likely failure points in AI's growth, which makes a Europe-based company a hesitant investment. ASML's CEO seems very good and may navigate it, but the risk extends to all of AI. x.com
