ASML Shares Fall as China Advances Homegrown Chip-Making Technology

Shares of Dutch semiconductor equipment giant ASML Holdings NV dropped significantly following reports that China is making progress in developing its own advanced chip-making machines. The news underscores the dual pressures facing the market leader: tightening U.S. export controls on one side and China's accelerated push for technological self-sufficiency on the other.

Market Reacts to New Competition

ASML's stock fell approximately 10% in two days after Reuters and The Information reported that a state-owned Chinese firm, Shanghai Aishengna Electronic Technology Group, is working to mass-produce immersion deep ultraviolet (DUV) lithography tools. The sell-off erased more than €60 billion from the company's market capitalization.

Lithography machines are essential for printing circuits onto silicon wafers. While ASML maintains a monopoly on the most advanced extreme ultraviolet (EUV) systems, its DUV machines represent a critical segment of the market. The reports indicated China aims to produce five of its own immersion DUV tools this year and 20 in 2027, a small fraction of the 131 similar systems ASML shipped in 2025.

The Geopolitical Squeeze

This development places ASML in a difficult position, caught between Washington and Beijing. The U.S. has progressively restricted ASML's ability to sell its advanced equipment to China, a market that ASML expects will account for 20% of its revenue, or about €9 billion, this year.

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These export controls, intended to slow China's technological progress, appear to have created a strong incentive for domestic innovation. Sanne van der Lugt, a researcher at the Leiden Asia Center, told Reuters the controls have "successfully created a business case for Chinese lithography." Chinese chipmakers, uncertain about long-term access to foreign technology, may opt for a less efficient domestic machine over none at all.

Long-Term Risks for ASML

Analysts are assessing the long-term impact of a potential Chinese competitor. In a note, JPMorgan analysts argued that the immediate damage to ASML would be limited but acknowledged the news "raises the long-term risk to ASML’s China revenue."

However, others see a more significant threat. Ipek Ozkardeskaya, an analyst at Swissquote, described the emergence of a Chinese rival as a potential "nightmare scenario" for ASML if it successfully erodes the company's dominance in the DUV market. While ASML built its market position over two decades of incremental improvements in machine performance and yield, export controls change the competitive landscape, potentially forcing Chinese customers to accept lower productivity to ensure supply chain security.