Investors in ASML got a jolt Monday after a report from The Information said an unnamed Chinese company has started making a type of chipmaking machine called an immersion DUV lithography tool. This is a market that ASML has basically owned for years. Following the report, ASML's shares dropped by up to 8% on Monday and were trading 1.8% lower by Tuesday.
Before this report, ASML shares had climbed over 123% this year. The company is still the only supplier of the high‑end machines that make the world's most advanced chips, and analysts informed CNBC that this news is not expected to undermine the Dutch firm's market leadership.
The report lands in the middle of a messy geopolitical fight. Export controls already prevent ASML from selling certain immersion DUV tools to Chinese customers. If China can build its own version, the thinking goes, it might not need to buy from ASML at all. But as several analysts pointed out, there is a big gap between building a prototype and building a business around it.
The Chinese entity is said to plan manufacturing only five units this year and roughly twenty by 2027. Compare that to ASML, which plans to have capacity to make 130 immersion DUV machines in 2026 alone and plans to boost that capacity by another 30% in 2027.
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ODDO BHF's head of equity research, Stephane Houri, was blunt: "I would take this with a pinch of salt as what [China does] could be limited to the very low end." The Futurum Group's AI lead, Nick Patience, noted that the crucial measure is "yield" - the number of usable chips a machine can produce. "They need to get to at least yield parity, not just have a working tool," he said. Patience further remarked that achieving dependable performance requires many years of real‑world refinement - something ASML possesses but China has not yet accomplished.
The analysts at SemiAnalysis listed numerous challenges: "Tool performance, scaling production of the machine itself, fleet performance, surrounding ecosystem and poor economics against fully depreciated ASML machines all stack up against China DUV." They said, "Scaling production of the machine itself [is] the most underestimated part."
Paul Triolo of DGA Albright Stonebridge Group summed it up: "Providing a small number of even minimally capable DUV machines domestically is one thing, supporting a global fleet that would provide real competition for ASML is quite another."
However, as multiple analysts noted, building a few prototype machines is far from achieving the reliability and yield necessary for commercial chipmaking. The enormous investment required - both in R&D and manufacturing scale - means that China's progress, while notable, is unlikely to challenge ASML's position in the near term.
Here is the part that matters for your portfolio. ASML's real crown jewel is not even DUV machines - it is the extreme ultraviolet (EUV) machines used to make the most advanced chips in the world. ASML remains the only company on Earth that can make those.
Triolo explained that while some DUV technology can be applied to EUV, the light source and optics required for EUV are far more complex. Houri was even blunter: "I think EUV is out of reach. Never say never, especially with the Chinese, but it's a completely different technology."
According to SemiAnalysis, ASML invested roughly two decades and $10 billion, with financial backing from Intel, TSMC, and Samsung among others, to make EUV commercially viable.
So what now? The biggest question is whether China can turn a handful of experimental machines into a reliable product that chipmakers like SMIC and CXMT (which went public this week) will actually use. Even if they do, ASML's order book is sold out. SemiAnalysis put it clearly: "A tool ASML cannot legally or physically supply being built locally does not subtract from a sold-out order book."
For investors, the takeaway is less about panic and more about patience. The story of China catching up in chip tools is a long one. This week's headline is a reminder that competition exists, but it is not a sign that ASML's lead is crumbling. The company's biggest moat - its technology, its scale, and its years of experience - still looks very solid.
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