Do you know that the complete chip trade depends on one single firm? And the true kicker? It’s not Chinese language or American. An important semiconductor producer is from the Netherlands, and it’s referred to 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 big could possibly be the true AI winner of 2025.
With one of many strongest MOATs on the planet, 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 in 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 guess. 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 latest weeks, information exhibits that the AI trade has solely gotten hotter. Non-public 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 made from transistors 30,000 occasions smaller than a human hair, is essentially the most superior manufacturing course of on earth. That’s the reason just one firm on the planet can produce the unbelievable machines that do it. ASML has constructed a monopoly because of its large technological benefit.
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Their flagship EUV lithography machines use a brilliant 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 dimensions 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, transferring at 200 meters per second – useless heart, 50,000 occasions a second. However we’re getting too technical right here. In order for you 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 not simply chatbots and picture mills. With growing capabilities in navy 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 just lately 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 speedy, no person is aware of what capabilities is likely to be 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 are attempting to focus on the step earlier than that, the manufacturing course of. In case your rival has worse know-how, they will’t get the most effective AI mannequin. A minimum of in concept.
However semiconductor provide chains are among the many most advanced on the planet. A chip is likely to be 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 planet is competing on this discipline. It’s simply too advanced 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
As a result of nature of ASML’s enterprise, traders should have a deep understanding of its machines. ASML really manufactures machines starting from the cutting-edge high-NA EUV to less complicated applied sciences the place ASML competes with Nikon and Canon. The 2 major classes, EUV and DUV, during 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 major progress drivers.
EUV: The Future Of Chipmaking
Something beneath 13.5 nm requires an EUV machine to fabricate. These embody 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’ll be able to count on that quantity of orders for ASML.
These are usually not common machines both. 150 ASML specialists are wanted to assemble the modular design, which is then shipped to prospects, 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’ll be able to 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 thousands and thousands yearly. So in the event you think about a brand new fab in Arizona for instance, with let’s imagine 10 EUV machines, that’s over 2,5 billion {dollars} of income for ASML. For a corporation that did almost 30 billion $ in income in 2024, that’s a reasonably large ticket.
Due to the excessive prices, solely a handful of corporations can afford them. TSMC, Samsung and Intel at present make up nearly all of ASML’s demand. This makes it simpler to venture future demand by monitoring growth 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 beneath building 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 know-how 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 will not be delivery EUV to China. Right here, we’re as soon as once more coming again to politics, as a result of ASML is going through export restrictions. The US has been urgent ASML to not promote to China since 2018, additional proving the delicate nature of this know-how. Nonetheless, ASML does enterprise with China of their much less superior DUV phase. Let’s check out that.
DUV: Outdated However Not Out of date (get the Terminator pun?)
DUV lithography is much less superior, however nonetheless vital and extensively utilized in each older nodes, starting from 28 – 90nm, and fewer vital 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 units. The biggest ones embody TSMC, Samsung, SK Hynix, Micron, Intel, and lots of Chinese language corporations.
Key progress drivers for these machines embody AI, self-driving, IoT & sensible units, and HBM and different reminiscence. It’s vital to notice that each EUV chip requires DUV as properly. Fabs include round double the quantity of DUV machines in comparison with EUV.
DUV are less complicated to fabricate and assemble as properly, “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), large up-front prices for rivals, crucial provider (chip fabs have to make use of ASML machines), strategic know-how (nations are more and more attempting to develop home chip manufacturing capabilities, boosting demand), large order backlog (ASML has sufficient orders for greater than a 12 months forward)
Weaknesses: difficult provide chain (usually with a single provider on the planet), publicity to tariffs (EU firm delivery 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 know-how, and demand is rising), Automotive (Ongoing electrification and FSD requires many superior chips for vehicles), authorities assist (governments are subsidizing home chip producers)
Threats: AI mannequin developments (extra environment friendly fashions may doubtlessly cut back demand for extra highly effective chips), commerce battle (tariffs may harm ASML’s provide chain and US may stress it to cease DUV enterprise with China)
Do you wish to study extra about ASML? Take a look at Neža Molk’s evaluation!
ASML’s Newest Quarterly Name Helps Progress Thesis
In ASML’s newest quarterly name, administration mentioned some very engaging issues supporting my progress thesis.
First, tariffs haven’t affected AI chip demand, and are possible not going to have an effect on ASML’s commerce with the US, as its know-how is vital 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 we have now with our prospects” and CFO Roger Dassen added that ASML expects that: “the lion’s share of the tariff burden ought to be borne by the following component within the worth chain,” hinting at how semiconductor fabs will in all probability bear essentially the most tariff impression as ASML has important bargaining energy because of its distinctive place.
However the irreplaceability of its machines offers producers a powerful argument to foyer towards tariffs on ASML’s machines. ASML acknowledged this on the earnings name, saying that it “is likely to be the rationale why semiconductors at the moment are exempt from tariffs,” including that this challenge “is being acknowledged by the U.S. administration.”
AI remains to be driving robust demand throughout the entire provide chain. In abstract, administration mentioned that main investments are already dedicated by corporations decided to compete within the AI race. Primarily based 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 essential subject is China, as a result of it’s anticipated to make up 25% of 2025 gross sales. ASML mentioned that Chinese language demand could be very robust, significantly because of the growth of the electrical automotive trade, but in addition AI and mainstream chips. In reality, Chinese language demand is best than anticipated a couple of months in the past.
ASML additionally confirmed that the growth of sovereign chip manufacturing is anticipated to drive demand for its machines, saying this development will drive up demand throughout the complete worth chain.
Is ASML Inventory Undervalued?
Right here comes the juicy half. Regardless of all of those constructive elements talked about above, ASML has turn into a casualty of investor pessimism. Its shares are buying and selling at significantly depressed ranges. Taking a look at relative metrics, it’s clear that ASML is buying and selling far beneath 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 a large wave of investments into chip know-how.
One other chart I like to take a look at is the worth at max, median, and max multiples. As you’ll be able to see, the shares at the moment are buying and selling at an alarmingly low value, probably creating a large alternative.
Trying 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 way in which may present momentum assist.
Is ASML Inventory A Purchase?
The market is usually 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. Nonetheless, I imagine that the market is significantly 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 potential outcomes:
Bull case: Trump’s tariff deal spares ASML’s machines, recognizing their vital 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 because of authorities incentives and demand indicators. On this case, we may see at the very least a 30% upside within the medium time period.
Base case: Trump’s tariffs hit ASML, which is ready to go down the prices to prospects because of its important bargaining energy. Increased costs stifle fab growth within the US, doubtlessly making 2025 one other transition 12 months for ASML till the mud settles. On this case, ASML nonetheless has 10% upside potential because of already deliberate growth offers.
Bear case: Tariffs plunge the US right into a deep recession, slowing AI demand and hurting ASML’s prospects. ASML will not be in a position to 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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