BofA Sees Buying Opportunity in ASML, Calls China Competition Fears 'Overreaction'

BofA Securities is advising clients that recent market weakness in ASML shares represents a compelling buying opportunity, asserting that fears over emerging Chinese competition in the lithography equipment space are overstated. The investment bank maintained its Buy rating and Top Pick status on the Dutch technology giant, framing the competitive threat as modest.

BofA's Analysis

The firm's position comes in response to media reports that China has begun developing its own deep ultraviolet (DUV) immersion technology. While acknowledging China is a significant market—accounting for roughly 20% of ASML's group sales and 44% of its DUV revenue in 2024—BofA believes the hurdle for a domestic alternative to match ASML's performance remains high.

BofA analysts calculate that even if China were to locally source 20 advanced lithography tools, the potential impact would be a reduction of €1.4 billion in ASML's sales. This figure represents just 2.4% of the company's projected group sales for the next year.

Gauging the Competition

Ad

Reports from *The Information* suggested that a collaboration of Chinese firms, including Yuliansheng Tech, could produce a small number of DUV tools for domestic chipmakers this year. However, BofA noted that China's leading domestic lithography player, SMEE, has not yet demonstrated systems capable of high-volume production for advanced chips at the 28nm node or below.

This contrasts sharply with ASML's established technology. For example, its NXT:1980Fi system can process 330 wafers per hour with a 2.5nm machine-matched overlay, a benchmark Chinese developers have not approached in a commercial product. BofA also pointed out that other U.S. semiconductor capital equipment companies already face local competition yet often trade at a premium to ASML, which maintains a de facto monopoly in cutting-edge EUV and ArFi lithography.

Market Context

ASML's strong financial performance underpins BofA's confidence. The company recently reported second-quarter results that surpassed analyst expectations and raised its full-year sales outlook. The report prompted other firms, including RBC Capital and Deutsche Bank, to raise their price targets on the stock, citing robust demand and an improving margin outlook.