Do you know that the complete chip trade depends on one single firm? And the true kicker? It’s not Chinese language or American. Crucial semiconductor producer is from the Netherlands, and it’s known as ASML. Proper now, it’s buying and selling at ranges final seen within the 2022 bear market. On this article, we’ll dive into why this monopolistic large could possibly be the true AI winner of 2025.
With one of many strongest MOATs on the earth, ASML is a key enabler of the AI revolution
AI is changing into a matter of nationwide safety, necessitating home chip manufacturing and driving demand for ASML
Learn on to seek out out if ASML is a match to your portfolio…
The AI revolution is reshaping how we work together with the best invention earlier than it — the pc. Three years in the past, AI felt like a dangerous wager. Right now, the larger danger lies in overlooking it. And that applies past investing.
Though market sentiment across the AI revolution has cooled down in current weeks, information reveals that the AI trade has solely gotten hotter. Personal investments are on monitor, governments are pouring tens of billions into sovereign chip and AI infrastructure, and AI fashions are more and more extra clever and helpful.
However making AI chips, that are fabricated from transistors 30,000 occasions smaller than a human hair, is probably the most superior manufacturing course of on earth. That’s the reason just one firm on the earth can produce the unimaginable machines that do it. ASML has constructed a monopoly because of its huge technological benefit.
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Their flagship EUV lithography machines use an excellent exact laser to attract circuits onto a chip so tiny, it’s like sketching a complete metropolis on a grain of rice. The method entails mirrors so easy that if scaled to the scale of the moon, their imperfections can be smaller than a blade of grass. That’s as a result of a standard mirror would soak up the laser’s miniature lightwaves, which should hit a droplet of tin – half the width of a human hair, shifting at 200 meters per second – lifeless middle, 50,000 occasions a second. However we’re getting too technical right here. If you would like extra particulars on ASML’s machines, I like to recommend studying their annual report right here.
However why would ASML be the AI winner of 2025?
AI is now not simply chatbots and picture mills. With growing capabilities in army and cybersecurity functions, AI is changing into a matter of nationwide curiosity. It’s clearly seen within the semiconductor commerce between the US and China. The US has not too long ago blocked Nvidia from promoting the H20 – its “dumbed-down” model of its Hopper chip – to China, citing safety dangers. In the meantime, China has put the burden of its authorities behind sovereign AI.
As a result of the event of AI is so fast, no person is aware of what capabilities is perhaps found. It’s more and more clear that we’re in an AI arms race, and everyone seems to be attempting to get forward. As a result of many main AI fashions are open supply, governments try to focus on the step earlier than that, the manufacturing course of. In case your rival has worse expertise, they will’t get the perfect AI mannequin. At the least in idea.
However semiconductor provide chains are among the many most complicated on the earth. A chip is perhaps designed within the U.S., manufactured in Taiwan, packaged in Vietnam, examined in China, and at last shipped again to the U.S. That’s the reason creating home chip manufacturing capabilities is changing into a strategic goal for the world’s main economies, that are realising that their interconnection is changing into a vulnerability.
And what’s step one to construct home modern chip foundries? That’s proper, shopping for lithography machines from ASML. No different firm on the earth is competing on this area. It’s simply too complicated and costly.
Let’s check out ASML’s enterprise mannequin to see the way it can leverage this example.
ASML’s Enterprise Breakdown & SWOT Evaluation
Because of the nature of ASML’s enterprise, traders will need to have a deep understanding of its machines. ASML really manufactures machines starting from the cutting-edge high-NA EUV to easier applied sciences the place ASML competes with Nikon and Canon. The 2 important classes, EUV and DUV, by which ASML holds a monopoly, made up 86% of 2024 income. That’s why we’re giving them particular consideration on this evaluation. These are additionally its important progress drivers.
EUV: The Future Of Chipmaking
Something under 13.5 nm requires an EUV machine to fabricate. These embrace chips just like the Snapdragon 8, Apple M3, Tesla Dojo D1 or Nvidia H100.
A typical semiconductor manufacturing plant, or “fab”, accommodates between 10 – 30 of those machines. So with each deliberate fab, you possibly can anticipate that quantity of orders for ASML.
These will not be common machines both. 150 ASML specialists are wanted to assemble the modular design, which is then shipped to clients, the place last meeting can take as much as six months, 120 engineers, and over 20 vehicles and three cargo planes. So It’s not like you possibly can decide these up and transfer them to a different facility. However after getting them, they will work for as much as 30 years.
These machines price between 200 – 250 million {dollars} a pop, with cutting-edge fashions costing as much as $ 400 million. Their upkeep prices additionally run into the tens of tens of millions yearly. So in case you think about a brand new fab in Arizona for instance, with shall we say 10 EUV machines, that’s over 2,5 billion {dollars} of income for ASML. For a corporation that did practically 30 billion $ in income in 2024, that’s a fairly large ticket.
Due to the excessive prices, solely a handful of corporations can afford them. TSMC, Samsung and Intel at present make up the vast majority of ASML’s demand. This makes it simpler to undertaking future demand by monitoring enlargement plans of those three corporations.
TSMC is increasing its manufacturing capabilities with three fabs in Arizona, one in Kumamoto, Japan, one in Taiwan, and one in Dresden, Germany. Intel is increasing its US fab footprint too, with two modern fabs below development in Arizona, two in Ohio and two in Magdeburg, Germany. Samsung is constructing two fabs in Texas and increasing capability in South Korea.
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As we will see, demand for EUV is prone to keep elevated within the coming years, with computing necessities prompting fabs to pursue smaller, 2nm expertise utilizing high-NA EUV, ASML’s newest innovation. Intel was the primary in line to order these machines.
It’s vital to notice that ASML just isn’t transport EUV to China. Right here, we’re as soon as once more coming again to politics, as a result of ASML is dealing with export restrictions. The US has been urgent ASML to not promote to China since 2018, additional proving the delicate nature of this expertise. Nevertheless, ASML does enterprise with China of their much less superior DUV section. Let’s check out that.
DUV: Previous However Not Out of date (get the Terminator pun?)
DUV lithography is much less superior, however nonetheless crucial and broadly utilized in each older nodes, starting from 28 – 90nm, and fewer crucial layers of vanguard nodes, serving as a complement to EUV. DUV is used for automotive chips, built-in circuits, RF chips, show chips, and others.
Right here, the listing of shoppers is for much longer, as they’re utilized in a variety of gadgets. The most important ones embrace TSMC, Samsung, SK Hynix, Micron, Intel, and plenty of Chinese language companies.
Key progress drivers for these machines embrace AI, self-driving, IoT & sensible gadgets, and HBM and different reminiscence. It’s vital to notice that each EUV chip requires DUV as effectively. Fabs comprise round double the quantity of DUV machines in comparison with EUV.
DUV are easier to fabricate and assemble as effectively, “solely” taking 3-5 months to assemble. The prices of DUV instruments vary from 10 million {dollars} for the best ones used for ICs to 80 million for superior instruments used to complement EUV in modern chip manufacturing. Upkeep prices attain 4-6 million $ per device.
Now that we all know what they do, let’s have a look at the SWOT evaluation.
Strengths: aggressive benefit (monopoly in >80% of income), huge up-front prices for opponents, mandatory provider (chip fabs have to make use of ASML machines), strategic expertise (international locations are more and more attempting to develop home chip manufacturing capabilities, boosting demand), huge order backlog (ASML has sufficient orders for greater than a yr forward)
Weaknesses: difficult provide chain (typically with a single provider on the earth), publicity to tariffs (EU firm transport to USA), unstable demand (ASML’s machines are a giant, one time funding, so demand can waiver)
Alternatives: AI (modern AI chips depend on EUV expertise, and demand is rising), Automotive (Ongoing electrification and FSD requires many superior chips for vehicles), authorities help (governments are subsidizing home chip producers)
Threats: AI mannequin developments (extra environment friendly fashions may probably cut back demand for extra highly effective chips), commerce struggle (tariffs may harm ASML’s provide chain and US would possibly stress it to cease DUV enterprise with China)
Do you need to study extra about ASML? Try Neža Molk’s evaluation!
ASML’s Newest Quarterly Name Helps Development Thesis
In ASML’s newest quarterly name, administration stated some very engaging issues supporting my progress thesis.
First, tariffs haven’t affected AI chip demand, and are seemingly not going to have an effect on ASML’s commerce with the US, as its expertise is essential to the administration’s goal of increasing the US’s semiconductor manufacturing capabilities.
Particularly, CEO Christophe Fouquet famous that: “the announcement of tariffs haven’t modified the enterprise dialog now we have with our clients” and CFO Roger Dassen added that ASML expects that: “the lion’s share of the tariff burden ought to be borne by the following aspect within the worth chain,” hinting at how semiconductor fabs will most likely bear probably the most tariff influence as ASML has important bargaining energy because of its distinctive place.
However the irreplaceability of its machines offers producers a powerful argument to foyer in opposition to tariffs on ASML’s machines. ASML acknowledged this on the earnings name, saying that it “is perhaps the rationale why semiconductors are actually exempt from tariffs,” including that this challenge “is being acknowledged by the U.S. administration.”
AI continues to be driving robust demand throughout the entire provide chain. In abstract, administration stated that main investments are already dedicated by corporations decided to compete within the AI race. Based mostly on buyer conversations, ASML sees 2025 and 2026 as strong progress years fueled by this momentum, with important chip manufacturing investments already locked in and future commitments trying very strong.
One other crucial subject is China, as a result of it’s anticipated to make up 25% of 2025 gross sales. ASML stated that Chinese language demand could be very robust, notably because of the enlargement of the electrical automotive trade, but in addition AI and mainstream chips. The truth is, Chinese language demand is best than anticipated a number of months in the past.
ASML additionally confirmed that the enlargement of sovereign chip manufacturing is anticipated to drive demand for its machines, saying this pattern will drive up demand throughout the complete worth chain.
Is ASML Inventory Undervalued?
Right here comes the juicy half. Regardless of all of those optimistic components talked about above, ASML has turn into a casualty of investor pessimism. Its shares are buying and selling at critically depressed ranges. relative metrics, it’s clear that ASML is buying and selling far under its imply over the previous ten years, suggesting a possible 20% upside.
The undervaluation turns into even clearer when trying on the valuation metrics since ChatGPT was launched, which began an enormous wave of investments into chip expertise.
One other chart I like to take a look at is the value at max, median, and max multiples. As you possibly can see, the shares are actually buying and selling at an alarmingly low value, probably creating an enormous alternative.
Wanting on the inventory from a technical perspective, we see a clearly outlined resistance stage at across the 610 $ mark. If we handle to interrupt that subsequent week, we may see the inventory rally 10% till it meets the second main resistance stage at 670$. Breaking the EMA’s alongside the best way may present momentum help.
Is ASML Inventory A Purchase?
The market is generally environment friendly more often than not. There are two methods a inventory turns into undervalued. Both the market costs in too little upside potential, or it costs in an excessive amount of draw back danger. In ASML’s case, it’s the latter.
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Tariffs, AI mannequin enhancements, and general souring sentiment have all weighed on ASML’s shares. Nevertheless, I consider that the market is critically mispricing the impact of this example on ASML. The corporate has a number of tailwinds going for it, making it unreasonably priced on the present ranges. Let’s have a look at three doable outcomes:
Bull case: Trump’s tariff deal spares ASML’s machines, recognizing their crucial significance within the semiconductor trade. AI demand stays on monitor, permitting ASML to execute on its progress technique. Fabs proceed to broaden within the US attributable to authorities incentives and demand alerts. On this case, we may see a minimum of a 30% upside within the medium time period.
Base case: Trump’s tariffs hit ASML, which is ready to move down the prices to clients because of its important bargaining energy. Larger costs stifle fab enlargement within the US, probably making 2025 one other transition yr for ASML till the mud settles. On this case, ASML nonetheless has 10% upside potential attributable to already deliberate enlargement offers.
Bear case: Tariffs plunge the US right into a deep recession, slowing AI demand and hurting ASML’s clients. ASML just isn’t capable of maneuver out of this, and progress will get harm. Even then, the inventory has restricted draw back at this value, as the corporate is anticipating to double by 2030.
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