Goldman Sachs: China’s lithography is 20 years behind ASML

Goldman Sachs: China’s lithography is 20 years behind ASML

ASML Holding N.V. (ASML.US) has been a subject of interest among investors, with its stock price fluctuating significantly due to geopolitical headwinds. The company's stock dropped from highs of over $1000 to around $755, primarily driven by China export restrictions [1]. ASML is a leader in EUV lithography technology, which is essential for manufacturing advanced chips below 7 nanometers. Despite its strong fundamentals, including a 26.95x P/E ratio and 58.25% ROE, the company faces significant challenges due to China's increasing restrictions on semiconductor exports.

ASML's business model involves selling expensive lithography machines to a limited number of customers, such as TSMC, Samsung, and Intel. The company's dominance in EUV technology is backed by a 20+ year R&D moat, making it nearly impossible for competitors to replicate their technology [1]. However, China's role in ASML's revenue has been substantial, accounting for approximately 29% of Q2 2025 revenue [1].

The recent escalation of export restrictions and potential bans on advanced DUV exports to China pose a significant risk to ASML's financial performance. The company's management has warned about potential "zero growth" in 2026 due to these restrictions [1]. While the long-term demand for AI-driven semiconductor technology is expected to grow, the immediate impact of losing China as a significant revenue source could be detrimental.

Goldman Sachs has highlighted that China's lithography technology is 20 years behind ASML's, indicating that China's reliance on foreign technology for advanced chip production may continue [3]. This dependency could exacerbate the impact of export restrictions on ASML's revenue, as China seeks to develop its own capabilities.

ASML's bullish long-term outlook, with expectations of global semiconductor sales exceeding $1 trillion by 2030, suggests that the company believes the AI-driven demand will offset the loss of China's market [2]. However, the timing of this offset is uncertain, and execution risks, such as construction delays and workforce shortages, could delay the realization of this potential [1].

In conclusion, ASML appears to be undervalued given its monopoly position and strong fundamentals. However, investors must consider the significant geopolitical risks and potential earnings volatility in the near term. The company's long-term prospects remain promising, but the immediate challenges pose a risk to its near-term performance.

References:
[1] https://www.reddit.com/r/ValueInvesting/comments/1mzsb5u/is_asml_actually_undervalued_at_755_the_china/
[2] https://www.moomoo.com/news/post/95142430/record-tr4cking-news-what-to-expect-in-the-week-ahead-crm-avgo-earnings
[3] https://www.ainvest.com/news/navigating-geopolitical-earnings-volatility-strategic-plays-asian-chip-sector-nvidia-downturn-2508/