When you think of semiconductor manufacturing, you probably think of high-tech factories in Taiwan or Silicon Valley. But the industry actually runs through one small town: Veldhoven, Netherlands, home to lithography giant ASML.
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Photo illustration by Connor Lin / The Daily Upside, Photos via ASML
When you think of the global semiconductor manufacturing sector and all the attendant geopolitical drama playing out as countries jockey to lead a highly digitized, AI-powered future, there are lots of places that come to mind.
There are the Taiwanese industrial parks in Hsinchu and Longtan, the chipmaking hubs in Seoul’s Yongin and Pyeongtaek, the surging in facilities in Japan’s Hokkaido and Hiroshima, and of course, Silicon Valley in California and the Silicon Hills of Texas.
What doesn’t often come to mind is a 46,000-person Dutch town near the Belgian border, where the main attraction is a farm museum.
But that’s Veldhoven, where the world’s largest supplier of the semiconductor industry is located, its 270-foot-tall headquarters towering above the native windmills like a Brabantian Burj Khalifa.
Indeed, according to a 2024 disclosure, ASML Holdings employs 44,000 people globally, almost as many as live in the town where it’s headquartered.
And those employees oversee a virtual global monopoly on something called extreme ultraviolet lithography (EUVL) machines, which print incredibly complex circuit patterns on silicon wafers.
They are an essential component in the manufacture of the most advanced semiconductors, meaning ASML is integrally placed in the supply chain of one of the world’s fastest-growing and most sensitive sectors. It also makes the company crucial to the most important commercial and strategic tech products on the market, from Apple iPhones to Nvidia’s AI accelerators.
With the tech stock rally of the last year, that would lead one to presume it’s been smooth sailing for ASML. But, on the contrary, its shares are down 26% in the last 12 months.
Up and down earnings in the last two quarters — relative to analyst expectations, that is — and a world of hyperintense political jockeying between China and its economic competitors in the West are the biggest reasons why, which we’ll look at below.
Nice Place to Be
First the good news, which is the global semiconductor market overall.
Global semiconductor sales soared 19% last year to a record $627 billion, fuelled by a dramatic 45% rise in purchases in the Americas, the Semiconductor Industry Association (SIA) said last month.
And the sector is poised to grow to nearly $700 billion in sales this year, according to estimates by the trade group World Semiconductor Trade Statistics. Deloitte analysts noted this puts the industry on track to reach $1 trillion in revenue by 2030.
Both the private and public sectors in the industry’s leading manufacturing markets have laid out years of hundreds of billions of dollars in commitments to growing capacity as well, which means a steady stream of new demand for ASML’s unique equipment.
In the US, while President Trump has expressed skepticism about the $280 billion CHIPS Act to build out US manufacturing, going so far as to say lawmakers should “get rid of” the 2022 legislation, he has nevertheless pressured companies to bring more semiconductor production stateside.
Earlier this month, he made a surprise White House announcement with the CEO of Taiwan Semiconductor Manufacturing Company (TSMC), the world’s most valuable chips maker, that the firm will invest $100 billion in the United States in addition to $65 billion in previously announced investments.
Back home in Taiwan, the world’s dominant chips-manufacturing nation with a 68% market share, the announcement triggered panic among opposition politicians, who feared TSMC caved to Trump’s threats to levy tariffs on Taiwanese semiconductors (something he’s reportedly still considering).
In response, the government insisted it would protect its industry by not letting TSMC’s most advanced technology head to the US.
Then there is South Korea, which last year announced a $470 billion, 20-year investment in Gyeonggi Province in partnership with SK Hynix and Samsung. The plan aims to transform the region into the world’s largest semiconductor cluster, consisting of as many as 37 chipmaking factories in eight cities, creating roughly 3 million jobs in the process.
Japan, meanwhile, plans to invest $66 billion in semiconductors and AI over the next seven years, with nearly $27 trillion of that allocated for next-generation chip production.
So set against all this activity, there’s very little surprise that ASML made a record €28 billion ($30.5 billion) in sales last year, with a healthy gross margin of 51% and €7.6 billion ($8.3 billion) in net income.
A Headache and, Some Say, An Opportunity
In October, ASML was Europe’s most valuable tech company. Then came its third-quarter financial results.
What especially freaked out Wall Street was the company’s booked orders, which at €2.6 billion ($2.8 billion) were less than half the €5.4 billion ($5.8 billion) expected by analysts, according to Bloomberg consensus data.
The day of the announcement, its shares tumbled a whopping 16% and the company lost €48.7 billion ($53 billion) in market capitalization, good for the biggest selloff in two decades. Its crucial role in the semiconductor industry was enough to drag down giants like Nvidia on the day.
ASML shares are still a far cry from a record high last July, and SAP is now the most valuable tech company in Europe.
But it’s not all doom and gloom.
In late January, ASML bested fourth-quarter and full-year earnings forecasts, and reported a robust €7 billion ($7.6 billion) in orders, with the spate of global announcements of investments in semiconductors in the US, South Korea and Japan buttressing its 2025 outlook.
CEO Christophe Fouquet also said that the breakthrough represented by the Chinese DeepSeek AI model, which requires less energy and computing resources than other models, was a good thing for ASML.
“A lower cost of AI could mean more applications,” he told CNBC. “More applications means more demand over time. We see that as an opportunity for more chip demand.”
While ASML’s stock has continued to drift downward, falling 7% in the last month, some analysts see it as an opportunity. After all, there is no question ASML is still the dominant player in the lithography tools market and will remain the biggest supplier to semiconductor manufacturers, even if it sometimes faces short-term questions amid industry fluctuations.
On Friday, TD Cowen analysts affirmed their buy rating on the company, hailing its 51% gross profit margin last year. They noted that it is trading close to a five-year low premium of 1.5, as measured by its price/earnings-to-growth ratio, compared with a 2.1 average.
DeepSeeking the Middle Kingdom
China — which we haven’t mentioned at length yet — is of course the other major player in the semiconductor market. But what makes it stand out from the rest is its geopolitical detachment from the West, and the unique pitfalls that presents for ASML.
In addition to its third-quarter earnings blip, the company’s shares have come under pressure as the Netherlands and the US have introduced ever more restrictive export controls on semiconductor parts to disrupt China’s industry, with the most recent tightening by Dutch authorities in September and US officials in December. (ASML said it still expects sales to fall within its 2025 forecast and China, unsurprisingly, has expressed anger at the export controls).
ASML has never been allowed to sell its EUV lithography machines to China, but has considerably expanded its sales of other equipment to the world’s second-largest economy: China revenue rose to €9 billion ($9.8 billion) last year from €6.4 billion ($6.9 billion) in 2023, according to Bloomberg data.
China, meanwhile, has expedited efforts to develop its own lithography machines, but so far has produced technology that is years behind ASML.
Two homegrown deep ultraviolet (DUV) lithography machines the government touted in September are way behind ASML’s EUV machines in terms of their overlay accuracy, which crucially means they can’t reliably produce advanced chips.
Privately held Shanghai Micro Electronics Equipment, which has backing from Beijing, is currently China’s leading company attempting to build domestic DUV and EUV lithography machines.
Outside of that, two major publicly traded companies in Japan, Nikon and Canon, are longtime photolithography players but appear to be tilting (or should that be wilting?) at windmills, falling years behind ASML in the EUV space.
During the dot-com boom, Cisco was at the forefront of the internet revolution. But after an initial massive run-up, Cisco’s stock struggled to keep up with outsized expectations, and failed to keep pace with the broader tech industry.
It’s a time-tested example of the perils of too much single-stock exposure.
For many portfolios in 2025, NVIDIA could be an analogous position in many portfolios. One that holds a dominant market position, but with scores of competitors looking to unseat it.
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