Uh-oh… China might have unlocked semiconductor magic

Welcome to AI Collision 💥,

In today’s collision between AI and our world:

• ASML faces some stiff competition
• China’s Q3 is going to tell us a lot
• Which risk is the bigger?

If that’s enough to get the light making magic, read on……

AI Collision 💥

Back in July 2024 I wrote to AI Collision readers about Dutch tech company ASML (ASML). What ASML does is nothing short of modern wizardry.

To understand that wizardry, you need to know a little about what the company actually does.

At the time I wrote,

Here’s a more detailed breakdown of ASML’s activities and products…

Photolithography Equipment: ASML specialises in producing advanced photolithography machines, which are used to etch microscopic patterns onto silicon wafers. These patterns form the intricate circuits in microchips. The company’s machines use light to transfer a pattern from a photomask to the wafer.

EUV Technology: ASML is particularly known for its cutting-edge Extreme Ultraviolet (EUV) lithography technology. EUV machines use extremely short wavelengths of light (13.5 nm) to create even smaller and more precise patterns on wafers. This technology is essential for producing the latest generations of microchips, enabling higher performance and lower power consumption in electronic devices.

DUV Technology: In addition to EUV, ASML also manufactures Deep Ultraviolet (DUV) lithography systems, which use longer wavelengths (193 nm) and are still widely used in semiconductor fabrication for various production steps.

Software and Metrology Solutions: ASML provides advanced software and metrology systems to enhance the accuracy and efficiency of the photolithography process. These tools help in aligning the patterns correctly and inspecting the wafers for defects.

ASML’s equipment and technology are essential to the semiconductor manufacturing process, enabling the production of increasingly powerful and efficient chips.

At the time, ASML released earnings and the stock went from around $1,000 per share down to around $900 per share.

Things got worse from ASML through 2024, trading as low as $645 per share. Even today at around $700 per share it’s a considerable way down from its lofty heights.

ASML has been the dominant player in EUV systems for semiconductor makers. It’s fair to say that without ASML we simply don’t get the advanced AI chips that are being rolled out today.

But the landscape has been changing for ASML for several years now. While it is still a critical gear in the global chip supply chain, there’s a big threat to its core business looming from China.

ASML has supplied its massive, expensive, unique machines to much of the Western world’s semiconductor makers for a long time. But since 2019, AMD has been unable to sell into China due to geopolitical tensions and an outright ban on selling EUV machines into China.

This has been its second biggest market outside of Taiwan. Even with its dominant market position, strong financials and a clear rise in demand for AI chips for the foreseeable future, there’s only so long China would sit by and just wait for things to free up… because it likely never would.

That’s why China has put considerable resources into making sure it has the tools to build its own AI chips and AI future with as little reliance on the West as possible. There’s now talk that China’s EUV development taking place at Huawei’s Dongguan facility has reached an important juncture. This from Trendforce.com,

[China’s] EUV machine, which uses laser-induced discharge plasma (LDP) technology, is set for trial production for the third quarter, 2025, with mass manufacturing aimed for 2026.

This has massive repercussions for both the leverage the West has over China regarding trade wars focused on AI technology and also (for at least the short term) the direction of ASML’s stock price.

I do expect that if China progresses down this route and it can successfully develop its own EUV machines to supply to its own domestic chip makers (and maybe even outside of China) then it surely has to hurt ASML short term.

Much in the way we wrote about the impact of technology risk on some of the big US tech incumbents, that too applies for all tech companies in the fast-moving world of AI.

This is still an early development. ASML has a long and trusted head start on anything China can bring out. But this will heighten the short-term volatility in ASML. It might be best to stick this one on the sidelines for a little while but keep on the radar should China’s development not go as it plans.

#AD

Trump Snub Opens New AI Window

The Trump administration refused to sign the Paris AI summit declaration. Britain didn’t sign it either. This US support is attracting big investments in Britain’s new “AI Railroad”. Amazon is in for £8 billion. Microsoft has a £2.5 billion stake. This could easily be the biggest financial opportunity in Britain today.

Capital at risk

Boomers & Busters 💰

AI and AI-related stocks moving and shaking up the markets this week. (All performance data below over the rolling week).

Boom 📈

• EchoIQ (ASX:EIQ) up 10%
• UiPath (NYSE:PATH) up 3%
• IBM (NYSE:IBM) up 3%

Bust 📉

• Western Digital (NASDAQ:WDC) down 13%
• Hewlett-Packard Enterprise (NYSE:HPE) down 20%
• Tesla (NASDAQ:TSLA) down 22%

From the hive mind 🧠

• Just another few hundred million finding its way to another AI startup – this time from Google DeepMind researchers. Just further evidence of more money moving into AI to build more companies and our high-tech future.
• AI will appear everywhere in our lives. From our phones and cars through to our speakers… yes, our speakers.
• The idea of a quantum internet has been around for a while. Scientists and researchers have been edging closer and closer to making it a reality. But they may have just made the biggest leap yet.

Artificial Polltelligence 🗳️

Weirdest AI image of the day

Dinosaurs in drag

ChatGPT’s random quote of the day

Thanks for reading, and don’t forget to leave comments and questions below,

Sam Volkering

Editor-in-Chief

AI Collision