ASML's Short-Term Gains vs. Long-Term Exposure to China's AI Slowdown

ASML's recent financial performance has been a rollercoaster for investors, with China's semiconductor boom driving record sales while geopolitical headwinds loom large. In Q2 2024, the Dutch chipmaker reported €6.2 billion in net sales, with 49% of that-€2.33 billion-coming from mainland ChinaQ2 2024 financial results | ASML^[1]. This figure, consistent with Q1 2024, underscores China's outsized role in ASML's revenue despite Dutch export restrictions on advanced EUV lithography systemsChina accounts for nearly half of ASML's Q2 revenue ... - TechNode^[2]. The company's reliance on DUV (deep ultraviolet) systems, which remain unrestricted, has been a lifeline, but this short-term gain masks a more complex long-term risk.

The Short-Term Play: DUV Dominance and Strategic Expansion

ASML's Q2 2024 results highlight the resilience of its DUV business. With EUV systems blocked from China, the company has pivoted to DUV machines, which accounted for 27% of its Q1 2025 system salesASML Q1 2025: China Grabs 27% Share, But EUV ...^[3]. This shift has been bolstered by U.S. export controls that limit Chinese access to cutting-edge tools, inadvertently creating a vacuum for ASML's older but still critical DUV systems. To capitalize, ASML has expanded its Beijing service center in 2025, aiming to reduce logistics delays and enhance local supportASML Doubles Down on China with New Beijing Repair ...^[4].

However, this strategy is a double-edged sword. While DUV sales have provided a buffer, they are inherently less profitable than EUV systems. ASML's gross margin of 51.5% in Q2 2024Q2 2024 financial results | ASML^[1] suggests strong pricing power, but the company's long-term growth hinges on EUV adoption-a segment China is systematically excluded from.

The Long-Term Risk: AI Slowdown and Self-Sufficiency Push

China's AI industry, once a tailwind for ASML, is now a source of uncertainty. In 2024, Chinese startups like DeepSeek introduced efficient AI models that require less advanced semiconductor equipmentASML's Market Decline Amid China's AI Advancements: A ...^[5]. This trend, coupled with U.S. export restrictions, has led to a sharp decline in Chinese orders for ASML's systemsHas ASML's China boom finally hit a wall?^[6]. By 2026, ASML projects China's contribution to its revenue will normalize to around 20%ASML expects sales in China to return to 'more normalized level']^[7], a drop that could accelerate if China's self-sufficiency in DUV technology materializes.

Shanghai Micro Electronics Equipment (SMEE), China's domestic lithography leader, has already developed a 28nm immersion scannerChina bets on DUV as EUV blockade reshapes chipmaking - but it ...^[8]. While these tools lag behind ASML's in performance, they represent a strategic pivot toward self-reliance. If SMEE scales to 7nm via multi-patterning-a technique that layers DUV systems to mimic EUV capabilities-ASML's dominance in China could erode. The Dutch government's recent expansion of export controls to even simpler DUV machines (e.g., 1970i and 1980i) has further complicated ASML's position, requiring licenses for servicing and spare partsNetherlands Expands Export Control over ASML's Two DUV Machines^[9].

Geopolitical Tightrope: Balancing Growth and Exposure

ASML's CEO has acknowledged that China is "10–15 years behind" in EUV technologyAI chip industry: China is 10 to 15 years behind the West in chipmaking capabilities because of this major reason, says ASML CEO^[10], but this gap is narrowing. The company's 2025 guidance-€30–35 billion in revenue-relies on AI-driven demandASML reports €7.5 billion total net sales and €2.1 billion net ...^[11], yet this optimism clashes with China's push to localize 50% of its chip productionChina trials its first advanced tools for AI chipmaking^[12]. The U.S. and its allies' expansion of export restrictions to cover more Chinese locationsASML expects impact of updated export restrictions to fall within ...^[13] adds another layer of risk, potentially limiting ASML's access to key markets.

For investors, the key question is whether ASML can maintain its margins while navigating these headwinds. The company's Q3 2024 guidance (€6.7–7.3 billion in sales) suggests confidence in short-term demandQ2 2024 financial results | ASML^[1], but the long-term outlook hinges on two variables: the pace of China's self-sufficiency and the sustainability of AI-driven chip demand.

Conclusion: A High-Stakes Gamble

ASML's current trajectory is a masterclass in short-term adaptability. By leveraging DUV systems and expanding local operations, the company has turned restrictions into opportunities. However, the long-term risks-China's AI slowdown, self-sufficiency in DUV, and geopolitical volatility-could undermine its market leadership. Investors must weigh these factors carefully. While ASML's EUV monopoly remains unchallenged for now, the semiconductor landscape is shifting rapidly. For every €10.2 billion in 2024 China salesASML's China Sales Hit Record €10.2B in 2024, Fueled by Booming Chip Industry Demand^[14], there's a growing shadow of disruption.