Dutch semiconductor equipment maker ASML, long regarded as a linchpin in the global chip supply chain, has seen its market value decline by roughly $130 billion since its peak just over a year ago. The steep contraction stems largely from tightening export controls on cutting-edge lithography machines destined for China, combined with uncertainty over U.S. tariff policy. As geopolitics and trade tensions ripple through semiconductor markets, ASML finds itself at the intersection of national security imperatives and commercial growth pressures.

A Steep Descent from Record Heights

In July of last year, ASML’s shares briefly surpassed €1,000 each, propelling the company’s market capitalization to about $430 billion. Investors had cheered ASML’s unassailable leadership in extreme ultraviolet (EUV) lithography—machines so advanced that no competitor could match them. EUV systems are essential for producing the world’s most sophisticated logic chips, enabling transistor densities that power next-generation smartphones, artificial intelligence workloads, and high-performance computing. This dominance underpinned lofty expectations for ASML’s future profits and stoked a prolonged rally in its stock.

By midsummer this year, however, ASML’s market value had slumped to nearly $300 billion, marking a roughly 30 percent decline. The swing wiped out more than $130 billion in equity value, reversing much of the remarkable surge that had driven ASML to historic highs. The precipitous drop in share price has left industry observers—and ASML’s management—grappling with the dual headwinds of restricted access to China’s booming semiconductor industry and escalating concerns over U.S. tariffs.

Since late 2020, the U.S. government has imposed increasingly stringent export controls on key semiconductor technologies, including EUV lithography systems, to prevent their use in China’s most advanced chipmakers. U.S. authorities asserted that restricting the sale of next-generation EUV tools was necessary to curb China’s military modernization and safeguard American technological advantages. Given that more than a quarter of ASML’s revenues had traditionally come from Chinese customers, these measures dealt a severe blow to the company’s top line.

Under the new regime, ASML must obtain explicit U.S. export licenses before shipping its highest-end EUV machines to Chinese foundries. In practice, these licenses have not been granted, effectively blocking Beijing-based chip manufacturers from accessing the most advanced ASML tools. Although ASML continues to ship earlier-generation deep ultraviolet (DUV) lithography equipment—such as immersion scanners—to China, the real profit drivers lie in the EUV portfolio, where unit prices exceed $150 million per machine. Without unrestricted access to China, ASML forfeits billions in potential sales to leading Chinese foundries that aim to close the gap with international leaders.

“China was on track to become one of ASML’s largest markets for EUV tools within the next few years,” said a semiconductor supply-chain analyst. “Now that door is effectively shut. Even selling DUV scanners simply doesn’t make up for the loss of EUV revenue.” Chinese semiconductor firms, from Huawei-affiliated chipmakers to Shanghai-based foundry start-ups, have scrambled to secure any available EUV capacity. In several instances, Chinese customers reportedly learned weeks before scheduled deliveries that they would not receive the most advanced machines—an uncertainty that has upended their multi-year technology roadmaps.

ASML’s senior leadership has acknowledged the disruption. In recent earnings presentations, the company’s CEO underscored that China’s share of ASML’s business would shrink in 2024 and 2025. Executives now anticipate that North America and Taiwan will account for a disproportionately larger portion of new EUV orders, while China will remain confined to stepping stones of DUV equipment and refurbishment services. Such a pivot, while necessary to comply with geopolitical restrictions, has injected notable caution into the euro-based company’s growth projections.

Tariff Threats Stoke Investor Anxiety

Compounding the export conundrum are lingering fears that the United States may impose broad tariffs on European-made semiconductor equipment in retaliation for subsidies granted under the European Chips Act. Although no final decision on tariffs has been reached, the mere possibility of additional duties on ASML’s products has unnerved investors. At its peak, ASML traded as though geopolitics posed little risk—now, every rumor of escalating U.S.-Europe trade skirmishes triggers sharp sell-offs.

Historically, ASML’s equipment has enjoyed duty-free status within major export markets due to its classification as high-tech capital goods. An across-the-board tariff of even 10 percent on ASML’s wafer-fabrication tools could add hundreds of millions of dollars to the cost of each machine, deterring potential buyers and curbing demand at a time when global chipmakers are already under pressure to rein in capital expenditures.

U.S. policymakers are reportedly divided over whether to target European semiconductor subsidies or adopt a more nuanced approach that spares strategic technologies from punitive duties. Meanwhile, ASML’s CFO has repeatedly testified before European legislators, insisting that tariffs would upend global supply chains and slow the rollout of EUV capacity needed to satisfy surging demand for chips. Despite these lobbying efforts, the specter of tariffs has sown uncertainty that weighs heavily on ASML’s share valuation.

Profit-Margin Squeeze and Inventory Glut

Even before trade tensions flared, ASML had warned of a cyclical downturn in semiconductor capital equipment spending. After a frenetic investment spree in 2021 and early 2022—sparked by surging demand for data-center chips and mobile GPUs—chipmakers began to pull back in 2023. The slowdown left ASML grappling with elevated inventories of both DUV and its nascent high-numerical-aperture (High-NA) EUV prototypes. While ASML’s order backlog remained in the double digits, CFO commentary suggested that customers were delaying new EUV orders until they could confirm the business case for next-generation wafer nodes.

Now, with China off-limits for EUV sales and U.S. tariff risks looming, the prospect of a prolonged equipment pullback has grown more acute. Industry trackers estimate that global semiconductor capital equipment budgets could shrink by 10 to 15 percent in 2024, extending into modest declines in 2025 before a more sustainable recovery. ASML executives caution that—even if geopolitical uncertainties ease—chipmakers are unlikely to restore capital spending to prior peak levels until 2026.

Given that ASML derives approximately 80 percent of its gross profit from EUV sales, any meaningful delay in those orders could depress margins. Indeed, recent quarterly reports revealed that ASML’s operating profit margin dipped slightly compared with historical highs. Analysts point out that sustaining the company’s R\&D outlays—necessary to remain at the frontier of lithography—will become more challenging if revenue growth stalls. In response, ASML has begun emphasizing services revenue, selling extended maintenance contracts and refurbishment kits for installed DUV systems, which provide steadier but lower-margin cash flow.

Broader Chip Sector Volatility

ASML is not alone in witnessing its share price tumble. The broader semiconductor equipment index has posted sharp losses this year, as chipmakers trim fab construction plans and sentiment toward artificial intelligence (AI) hardware cools. With AI-related chip demand failing to meet the sky-high forecasts of late 2022, investors have grown skeptical about the pace of capital spending recovery. In Europe, other equipment suppliers—such as ASMI and Soitec—have seen similarly pronounced share-price drops, reflecting market fear that a deeper downcycle may be on the horizon.

Within the foundry space, firms like Taiwan Semiconductor Manufacturing Company (TSMC) and Samsung Electronics have signaled that they will continue to invest in cutting-edge process nodes, albeit at a more measured pace. Their capital expenditure plans for 2024 still run into the tens of billions of dollars, earmarked for expanding existing fabs and rolling out incremental EUV capacity. However, analysts note that a large portion of that spending is intended to replace legacy DUV capacity and maintain capacity utilization, rather than fund entirely new facilities. Absent new large-scale fab announcements—particularly in China or the United States—the equipment pipeline may well remain constrained.

Potential Upside from Trade Resolution

Despite the challenges, there remains cautious optimism that a resolution of key trade disputes could restore some of ASML’s lost valuation. European and U.S. negotiators have engaged in back-channel talks aimed at minimizing cross-Atlantic semiconductor friction. If the two sides can strike an accord that exempts core lithography equipment from punitive duties, ASML could shed a major overhang from its share price. Moreover, should U.S. export controls on EUV machines soften—perhaps by allowing carefully managed shipments under strict end-use monitoring—ASML could recapture part of the Chinese market, estimated at 30 percent of global new EUV fab tool demand.

Banking analysts covering ASML have set target prices for its shares that imply roughly 15 to 20 percent upside from current levels, predicated on a partial thaw in geopolitical tensions and a gradual uptick in chip-cap equipment budgets by 2026. In the nearer term, some investors believe that ASML’s shift toward selling refurbished DUV units and expanding its service network will help stabilize cash flow until EUV demand rebounds. Others argue that the company’s dominance in high-NA EUV—expected to be crucial for sub-3-nanometer manufacturing—will preserve its moat even if China remains off-limits for several years.

ASML’s management has responded to the uncertainty by diversifying into adjacent markets. The company is stepping up investment in metrology systems and e-beam inspection machines that are critical for defect analysis at advanced nodes, products that can be exported more freely to all regions. In addition, ASML has accelerated collaboration with Taiwanese and U.S.-based research partners to co-develop next-generation lithography techniques, such as high-index immersion and complementary patterning solutions. By broadening its technology portfolio, ASML hopes to reduce reliance on EUV revenue and ensure more balanced growth streams.

Meanwhile, ASML’s engineering teams continue to refine the High-NA EUV prototype, which is slated for limited rollout in late 2025. High-NA promises to deliver finer resolution and higher productivity, making it indispensable for leading-edge fabs. Although these machines come with price tags exceeding €200 million apiece, they represent ASML’s most formidable technological advantage. Even with China curtailed, demand for High-NA could remain robust among Taiwanese and South Korean foundries seeking to push Moore’s Law further.

Internally, ASML has taken steps to streamline production processes and cut nonessential R\&D spending. Management forecasts indicate that the company will maintain flat headcount growth in 2024 while focusing hiring efforts on EUV integration specialists and service engineers. The aim is to preserve financial flexibility and weather any prolonged dip in capital equipment orders. As part of cost discipline measures, ASML has also renegotiated component-sourcing agreements and optimized its fab utilization in Veldhoven, the Netherlands.

A Pivotal Year for ASML

As 2024 unfolds, ASML confronts a pivotal juncture. On one hand, the company must navigate an uncertain geopolitical environment that shows little sign of near-term de-escalation. China continues to prioritize self-sufficiency in semiconductor manufacturing, funneling billions of dollars into domestic lithography research, while U.S. regulators maintain tight controls on EUV exports. Even without fresh tariffs, the export restrictions alone have cost ASML nearly one-third of its potential market.

On the other hand, ASML’s underlying technology leadership remains unmatched. No rival can match its throughput, wavelength control, or reliability track record for EUV tools. For chipmakers building entire fabs around ASML’s systems, switching to alternative lithography options is not feasible. Even in the face of softened demand, fab operators will continue to place orders for replacement EUV units—ensuring a baseline revenue stream, albeit below prior forecasts.

Industry observers liken ASML’s current predicament to earlier cycles in which the company had to weather temporary downturns—such as the 2019 memory-equipment slump—before emerging stronger. Most anticipate that, once geopolitical clouds lift or stabilize, ASML’s order book will begin to refill, particularly for its high-NA roadmap. Indeed, some analysts argue that China’s long-term ambition to develop homegrown EUV alternatives remains years away from fruition. Until then, ASML’s technology moat will keep it squarely at the center of any global effort to push chip scaling into the sub-2-nanometer era.

For now, however, market watchers will be watching ASML closely. Each quarterly report and every regulatory announcement has the power to move its shares by several percentage points. The road back to a $430 billion valuation may be long and contingent on factors beyond ASML’s control. Yet, with EUV technology firmly entrenched in virtually every new leading-edge fab plan, ASML’s place as a critical chip-sector cornerstone appears secure—albeit one buffeted by the ebb and flow of international trade politics.

(Adapted from CNBC.com)