China’s Semiconductor Ambitions Challenge ASML’s Market Dominance

The investment thesis surrounding Dutch semiconductor equipment giant ASML is facing renewed scrutiny. Recent reports detailing a significant technological advance in China are introducing a potential long-term risk to the company's previously unassailable market position in a critical segment.

Central to investor concerns is news that Chinese engineers have reportedly developed a working prototype of an extreme ultraviolet (EUV) lithography machine. This technology is the cornerstone of manufacturing the world's most advanced semiconductors, and ASML has maintained a de facto global monopoly on its production. Sources suggest the Chinese effort may have involved former ASML employees.

This development, if validated, could accelerate timelines previously assumed by industry experts. As recently as late 2024, ASML's CEO Christophe Fouquet estimated China's technological lag at 10 to 15 years. The Chinese project now aims to produce functional chips using this technology by 2030. While the prototype is believed to be based on reverse engineering and second-hand components, its existence signals a narrowing technological gap that could threaten ASML's competitive moat sooner than the market has priced in.

Should investors sell immediately? Or is it worth buying ASML?

ASML's Strategic Countermeasures and Financial Performance

Amid these geopolitical headwinds, ASML continues to execute its own strategy. The company has moved to reinforce its commitment to its home region, confirming a €93 million investment in the Brainport infrastructure ecosystem around Eindhoven. Simultaneously, it is exploring diversification. Its core EUV technology is finding an unexpected application in the biomedical field for the mass production of nanopores used in molecular sensors, opening a potential revenue stream beyond traditional chipmaking.

Financially, the company's shares reflect its underlying strength, even as they take a pause. Following an impressive rally of over 31% since the start of the year, the stock currently trades at €898.00, consolidating just below its 52-week high. The relatively muted market reaction to the China news suggests investors currently view the near-term threat to ASML's business model as contained.

The Road Ahead: Earnings in Focus

The fundamental outlook from analysts remains favorable. Researchers at Bank of America, for instance, continue to label ASML a top pick for the semiconductor sector in 2026, driven by the relentless expansion of AI infrastructure. The next critical test arrives in late January. When ASML reports its fourth-quarter and full-year 2025 results, management will be pressed to provide a concrete assessment of the validity of China's claims and to outline its targets for 2026.