An analysis report from Bank of America has suggested that the threat of China’s chip equipment might be exaggerated, as the leading position of Dutch chip manufacturing equipment giant ASML is challenging to surpass.
According to a report by “The Information” on Monday, Chinese companies are beginning to produce Immersion Deep Ultraviolet Lithography Machines (DUV), with plans to manufacture 5 units in 2026 and around 20 units in 2027.
Investors are concerned that if Beijing continues to develop its own semiconductor technology independently, it could potentially exclude some of the largest American, European, and other Asian companies from the Chinese market. ASML has maintained a dominant position in the market. ASML’s stock dropped by 5.9% on Monday and fell by another 5% on Tuesday.
DUV is a crucial equipment used for etching circuit patterns on silicon wafers. It plays a vital role in the semiconductor manufacturing process and is widely procured by factories like TSMC and Intel. However, it is primarily used for producing lower-tech level chips.
In contrast, cutting-edge chips designed by companies like Apple and Nvidia require Extreme Ultraviolet (EUV) lithography machines. ASML has prohibited the export of EUV lithography machines to China.
Industry experts state that for China to compete with ASML in producing lithography machines, they need to at least match ASML’s yield rate, not just the equipment availability.
Nick Patience, AI director of Futurum Group, mentioned to CNBC that in order for China to compete with ASML in DUV lithography machines, they need to achieve a yield rate that is on par with ASML, rather than just having the equipment available.
It is revealed that the yield rate of Chinese chip factories is low, even when using imported DUV lithography machines like the one from SMIC, China’s largest chip manufacturer, which still significantly lags behind Taiwan’s TSMC.
“Any machines manufactured by unknown state-owned enterprises won’t have a high starting point,” he said. “Reliability requires years of on-site iteration, something that ASML has achieved, which China is far from reaching.”
If the yield rate is significantly lower than ASML’s equipment, it will definitely hinder the promotion or widespread use of Chinese equipment.
Another challenge China faces is expanding the capacity of these machines. Chinese companies developing DUV tools plan to manufacture around 5 units by 2026 and around 20 units by 2027. In comparison, ASML plans to achieve a capacity of approximately 130 DUV immersion devices in 2026 and aims to increase by 30% in 2027.
Analysts from SemiAnalysis informed CNBC that the machine’s performance, the production capacity of the machine itself, the overall equipment performance, the peripheral ecosystem, and the economic aspects compared to depreciated ASML machines all put Chinese DUV equipment at a disadvantage.
Among these factors, the production capacity of the machines themselves is the most underestimated part.
Paul Triolo, a partner at DGA Albright Stonebridge Group, told CNBC that any challenge to ASML would require this Chinese company to mass-produce reliable equipment and provide support in various wafer factory environments worldwide, which currently seems quite challenging.
“It’s one thing to provide a small number of limited-function DUV equipment domestically, and it’s another thing to support a global equipment group that can truly compete with ASML,” he said.
Stephane Houri, stock research director at ODDO BHF, assessed that the mass production of lithography machines in China may ultimately be limited to very low-end areas.
Jennifer Johnson, a European tech columnist at Reuters, wrote on Tuesday that while it’s understandable that investors are anxious, ASML holds a massive lead in technology and market demand is unlikely to change easily.
She mentioned that there are concerns about the performance, reliability, and chip processing speed of China’s new equipment, indicating that ASML could maintain a lasting advantage in technology and stay ahead of emerging competitors. In 2025 alone, ASML sold 279 DUV devices, with many chip companies in queue to place orders.
Johnson acknowledged that the long-term concern about whether China might eventually produce equipment challenging ASML’s existing equipment is a risk, but it’s not an imminent issue currently.
Didier Scemama, an analyst at Bank of America, stated that the current market reaction is exaggerated and the threat posed by Chinese firms to ASML is not substantial.
“To replace ASML, one needs to find a domestic alternative product that matches it in production efficiency, process level, and cost competitiveness. This remains a significant challenge,” he wrote.
Scemama also pointed out that even if China can locally acquire 20 DUV machines, it would only have a 1.4 billion euro impact on ASML’s revenue by 2027, accounting for just 2.4% of the Dutch company’s total sales.
“China remains a crucial market for ASML, with the Chinese market expected to represent around 20% of ASML’s sales by 2026 and 44% of its Deep Ultraviolet lithography machine revenue,” the report stated.
Bank of America reiterated its “Buy” rating for ASML, maintaining a target price of $2,845 for ASML’s US-listed stocks. This implies over a 70% increase from Monday’s closing price.
The bank also listed ASML stocks as a “Top Pick”.
Not just Bank of America, but 21 other analysts currently have a positive outlook on ASML’s stock performance, giving “Buy” or “Strong Buy” recommendations. The average target price given by analysts for ASML is $2,172.27 per share, expecting the stock price to rise by over 30% from the current level.