Why ASML’s China Sell-Off May Be Premature
but not irrational.
$ASML Holding NV(ASML)$ fell sharply on July 27 following reports that China had begun producing domestic immersion deep-ultraviolet lithography machines. The development does not immediately displace ASML’s technology, but it challenges the assumption that its existing competitive position will remain permanently unassailable.
China’s state-backed Shanghai Aishengna Electronic Technology Group reportedly started manufacturing domestic immersion DUV machines. Initial deliveries to $SMIC(00981)$, $Hua Hong Grace Semiconductor Limited(688347)$ and $Cxmt Corporation(688825)$ are expected during 2026, with production reportedly targeted at approximately five units this year and 20 in 2027. Reuters’ July 28 follow-up confirmed production while noting that the machines still lag ASML’s technology.
DUV systems can manufacture many mature and some advanced chips through multiple-patterning techniques. ASML’s extreme-ultraviolet machines remain considerably more important for efficiently producing leading-edge processors, and China has not demonstrated an immediately competitive commercial EUV system.
ASML’s current results show that demand remains strong. Second-quarter sales reached €9.3 billion, gross margin was 54% and net income reached €2.9 billion. Management expects third-quarter sales of €11 billion–€12 billion and raised expected 2026 sales to €43 billion–€45 billion. ASML’s July 15 results provide the figures and guidance.
The bullish case is that ASML possesses decades of accumulated expertise, an extensive supplier network and close relationships with advanced foundries. Producing a prototype is not equivalent to achieving ASML’s throughput, precision, reliability and servicing capability.
The longer-term bearish risk is substitution at the lower end. Chinese manufacturers may initially accept inferior performance in exchange for guaranteed domestic access. If local DUV systems gradually improve, ASML could lose Chinese sales even without losing technological leadership globally.
ASML’s US-listed shares fell 5.8% on July 27 to approximately $1,655 and moved below their 50-day moving average.
ASML Daily Chart
$ASML Holding NV(ASML)$’s daily chart remains in a broader uptrend, but the recent rejection from the $1,900–$2,000 area and sharp pullback show that momentum has cooled significantly. The stock is now approaching a minor support level near $1,532, which may produce a short-term bounce, but this zone is relatively weak compared with the more important demand area at $1,248–$1,316; a decisive daily close below $1,532 would therefore raise the risk of a deeper retracement toward that lower support band.
Because the stock is still volatile and extended well above its longer-term base, buying calls immediately offers an unattractive risk-reward profile. The cleaner setup would be to wait for ASML to stabilize above $1,532 and reclaim roughly $1,700–$1,750, then consider a 60–90 DTE $1,700/$1,850 call debit spread for a recovery trade; alternatively, after a confirmed close below $1,532, a defined-risk $1,550/$1,350 put debit spread could target the stronger support zone while limiting downside risk.
The evidence leans neutral to moderately bullish because ASML’s technological and financial position remains strong, but China’s progress is a credible long-term risk. The constructive view would be invalidated by Chinese tools achieving competitive yields and throughput, materially reducing ASML’s Chinese orders or export restrictions expanding further. This is personal opinion for education and is not financial advice.
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