ASML: The Hidden AI Winner of 2025?

Posted on: Apr 30 2025

Did you know that the entire chip industry relies on one single company? And the real kicker? It’s not Chinese or American. The most important semiconductor manufacturer is from the Netherlands, and it’s called ASML. Right now, it’s trading at levels last seen in the 2022 bear market. In this article, we’ll dive into why…

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With one of the strongest MOATs in the world, ASML is a key enabler of the AI revolution
AI is becoming a matter of national security, necessitating domestic chip manufacturing and driving demand for ASML
Read on to find out if ASML is a fit for your portfolio…

The AI revolution is reshaping how we interact with the greatest invention before it — the computer. Three years ago, AI felt like a risky bet. Today, the greater risk lies in overlooking it. And that applies beyond investing.

Although market sentiment around the AI revolution has cooled down in recent weeks, data shows that the AI industry has only gotten hotter. Private investments are on track, governments are pouring tens of billions into sovereign chip and AI infrastructure, and AI models are increasingly more intelligent and useful.

But making AI chips, which are made of transistors 30,000 times smaller than a human hair, is the most advanced manufacturing process on earth. That is why only one company in the world can produce the incredible machines that do it. ASML has built a monopoly thanks to its massive technological advantage.

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Their flagship EUV lithography machines use a super precise laser to draw circuits onto a chip so tiny, it’s like sketching an entire city on a grain of rice. The process involves mirrors so smooth that if scaled to the size of the moon, their imperfections would be smaller than a blade of grass. That’s because a normal mirror would absorb the laser’s miniature lightwaves, which must hit a droplet of tin – half the width of a human hair, moving at 200 meters per second – dead center, 50,000 times a second. But we’re getting too technical here. If you want more details on ASML’s machines, I recommend reading their annual report here.

But why would ASML be the AI winner of 2025?

AI is no longer just chatbots and image generators. With increasing capabilities in military and cybersecurity applications, AI is becoming a matter of national interest. It’s clearly visible in the semiconductor trade between the US and China. The US has recently blocked Nvidia from selling the H20 – its “dumbed-down” version of its Hopper chip – to China, citing security risks. Meanwhile, China has put the weight of its government behind sovereign AI.

Because the development of AI is so rapid, nobody knows what capabilities might be discovered. It is increasingly clear that we are in an AI arms race, and everyone is trying to get ahead. Because many leading AI models are open source, governments are trying to target the step before that, the manufacturing process. If your rival has worse technology, they can’t get the best AI model. At least in theory.

But semiconductor supply chains are among the most complex in the world. A chip might be designed in the U.S., manufactured in Taiwan, packaged in Vietnam, tested in China, and finally shipped back to the U.S. That is why developing domestic chip manufacturing capabilities is becoming a strategic objective for the world’s leading economies, which are realising that their interconnection is becoming a vulnerability.

And what’s the first step to build domestic leading-edge chip foundries? That’s right, buying lithography machines from ASML. No other company in the world is competing in this field. It’s just too complex and expensive.

Let’s take a look at ASML’s business model to see how it can leverage this situation.

ASML’s Business Breakdown & SWOT Analysis

Due to the nature of ASML’s business, investors must have a deep understanding of its machines. ASML actually manufactures machines ranging from the cutting-edge high-NA EUV to simpler technologies where ASML competes with Nikon and Canon. The two main categories, EUV and DUV, in which ASML holds a monopoly, made up 86% of 2024 revenue. That’s why we are giving them special attention in this analysis. These are also its main growth drivers.

EUV: The Future Of Chipmaking

Anything below 13.5 nm requires an EUV machine to manufacture. These include chips like the Snapdragon 8, Apple M3, Tesla Dojo D1 or Nvidia H100.

A typical semiconductor manufacturing plant, or “fab”, contains between 10 – 30 of these machines. So with every planned fab, you can expect that amount of orders for ASML.

These are not regular machines either. 150 ASML specialists are needed to assemble the modular design, which is then shipped to customers, where final assembly can take up to six months, 120 engineers, and over 20 trucks and three cargo planes. So It’s not like you can pick these up and move them to another facility. But once you have them, they can work for up to 30 years.

These machines cost between 200 – 250 million dollars a pop, with cutting-edge models costing up to $ 400 million. Their maintenance costs also run into the tens of millions yearly. So if you imagine a new fab in Arizona for example, with lets say 10 EUV machines, that’s over 2,5 billion dollars of revenue for ASML. For a company that did nearly 30 billion $ in revenue in 2024, that’s a pretty big ticket.

Because of the high costs, only a handful of companies can afford them. TSMC, Samsung and Intel currently make up the majority of ASML’s demand. This makes it easier to project future demand by tracking expansion plans of these three companies.

TSMC is expanding its manufacturing capabilities with three fabs in Arizona, one in Kumamoto, Japan, one in Taiwan, and one in Dresden, Germany. Intel is expanding its US fab footprint too, with two leading-edge fabs under construction in Arizona, two in Ohio and two in Magdeburg, Germany. Samsung is building two fabs in Texas and expanding capacity in South Korea.

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As we can see, demand for EUV is likely to stay elevated in the coming years, with computing requirements prompting fabs to pursue smaller, 2nm technology using high-NA EUV, ASML’s latest innovation. Intel was the first in line to order these machines.

It’s important to note that ASML is not shipping EUV to China. Here, we are once again coming back to politics, because ASML is facing export restrictions. The US has been pressing ASML to not sell to China since 2018, further proving the sensitive nature of this technology. However, ASML does business with China in their less advanced DUV segment. Let’s take a look at that.

DUV: Old But Not Obsolete (get the Terminator pun?)

DUV lithography is less advanced, but still critical and widely used in both older nodes, ranging from 28 – 90nm, and less critical layers of leading edge nodes, serving as a supplement to EUV. DUV is used for automotive chips, integrated circuits, RF chips, display chips, and others.

Here, the list of customers is much longer, as they are used in a wide range of devices. The largest ones include TSMC, Samsung, SK Hynix, Micron, Intel, and many Chinese firms.

Key growth drivers for these machines include AI, self-driving, IoT & smart devices, and HBM and other memory. It’s important to note that every EUV chip requires DUV as well. Fabs contain around double the amount of DUV machines compared to EUV.

DUV are simpler to manufacture and assemble as well, “only” taking 3-5 months to assemble. The costs of DUV tools range from 10 million dollars for the simplest ones used for ICs to 80 million for advanced tools used to supplement EUV in leading-edge chip production. Maintenance costs reach 4-6 million $ per tool.

Now that we know what they do, let’s look at the SWOT analysis.

Strengths: competitive advantage (monopoly in >80% of revenue), massive up-front costs for competitors, necessary supplier (chip fabs have to use ASML machines), strategic technology (countries are increasingly trying to develop domestic chip manufacturing capabilities, boosting demand), massive order backlog (ASML has enough orders for more than a year ahead)

Weaknesses: complicated supply chain (often with a single supplier in the world), exposure to tariffs (EU company shipping to USA), volatile demand (ASML’s machines are a big, one time investment, so demand can waiver)

Opportunities: AI (leading-edge AI chips rely on EUV technology, and demand is rising), Automotive (Ongoing electrification and FSD requires many advanced chips for cars), government support (governments are subsidizing domestic chip manufacturers)

Threats: AI model advancements (more efficient models could potentially reduce demand for more powerful chips), trade war (tariffs could hurt ASML’s supply chain and US might pressure it to stop DUV business with China)

Do you want to learn more about ASML? Check out Neža Molk’s analysis!

ASML’s Latest Quarterly Call Supports Growth Thesis

In ASML’s latest quarterly call, management said some very enticing things supporting my growth thesis.

First, tariffs have not affected AI chip demand, and are likely not going to affect ASML’s trade with the US, as its technology is key to the administration’s objective of expanding the US’s semiconductor manufacturing capabilities.

Specifically, CEO Christophe Fouquet noted that: “the announcement of tariffs have not changed the business conversation we have with our customers” and CFO Roger Dassen added that ASML expects that: “the lion’s share of the tariff burden should be borne by the next element in the value chain,” hinting at how semiconductor fabs will probably bear the most tariff impact as ASML has significant bargaining power thanks to its unique position.

But the irreplaceability of its machines gives manufacturers a strong argument to lobby against tariffs on ASML’s machines. ASML recognized this on the earnings call, saying that it “might be the reason why semiconductors are now exempt from tariffs,” adding that this issue “is being recognized by the U.S. administration.”

AI is still driving strong demand across the whole supply chain. In summary, management said that major investments are already committed by companies determined to compete in the AI race. Based on customer conversations, ASML sees 2025 and 2026 as solid growth years fueled by this momentum, with significant chip production investments already locked in and future commitments looking very solid.

Another very important topic is China, because it is expected to make up 25% of 2025 sales. ASML said that Chinese demand is very strong, particularly thanks to the expansion of the electric car industry, but also AI and mainstream chips. In fact, Chinese demand is better than anticipated a few months ago.

ASML also confirmed that the expansion of sovereign chip manufacturing is expected to drive demand for its machines, saying this trend will drive up demand across the entire value chain.

Is ASML Stock Undervalued?

Here comes the juicy part. Despite all of these positive factors mentioned above, ASML has become a casualty of investor pessimism. Its shares are trading at seriously depressed levels. Looking at relative metrics, it’s clear that ASML is trading far below its mean over the past ten years, suggesting a potential 20% upside.

The undervaluation becomes even clearer when looking at the valuation metrics since ChatGPT was launched, which started a massive wave of investments into chip technology.

Another chart I like to look at is the price at max, median, and max multiples. As you can see, the shares are now trading at an alarmingly low price, possibly creating a massive opportunity.

Looking at the stock from a technical perspective, we see a clearly defined resistance level at around the 610 $ mark. If we manage to break that next week, we could see the stock rally 10% until it meets the second major resistance level at 670$. Breaking the EMA’s along the way could provide momentum support.

Is ASML Stock A Buy?

The market is mostly efficient most of the time. There are two ways a stock becomes undervalued. Either the market prices in too little upside potential, or it prices in too much downside risk. In ASML’s case, it’s the latter.

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Tariffs, AI model improvements, and overall souring sentiment have all weighed on ASML’s shares. However, I believe that the market is seriously mispricing the effect of this situation on ASML. The company has multiple tailwinds going for it, making it unreasonably priced at the current levels. Let’s look at three possible outcomes:

Bull case: Trump’s tariff deal spares ASML’s machines, recognizing their critical importance in the semiconductor industry. AI demand remains on track, allowing ASML to execute on its growth strategy. Fabs continue to expand in the US due to government incentives and demand signals. In this case, we could see at least a 30% upside in the medium term.

Base case: Trump’s tariffs hit ASML, which is able to pass down the costs to customers thanks to its significant bargaining power. Higher prices stifle fab expansion in the US, potentially making 2025 another transition year for ASML until the dust settles. In this case, ASML still has 10% upside potential due to already planned expansion deals.

Bear case: Tariffs plunge the US into a deep recession, slowing AI demand and hurting ASML’s customers. ASML is not able to maneuver out of this, and growth gets hurt. Even then, the stock has limited downside at this price, as the company is expecting to double by 2030.

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Published by: Daniel Carter