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As the AI Hype continues to drive corporate spends, Netherlands-based ASML N.V. (ticker: ASML) is a crucial – and sometimes underrated – foundation of technology development. Specializing in photolithography machines used in semiconductor manufacturing, the company’s technology is central to the production of advanced chips and a critical enabler of global technological progress.
ASML’s Role in Semiconductor ManufacturingASML primarily generates revenue from two segments:
System Sales to the world’s leading semiconductor manufacturers such as Intel, Samsung, and TSMC for creating advanced microchips. ASML’s most advanced systems, particularly those based on Extreme Ultraviolet (EUV) lithography, are capable of manufacturing the latest-generation chips that power everything from smartphones to cloud computing infrastructure.
ASML’s breakthrough in EUV technology has placed it in a near-monopolistic position in the semiconductor equipment space. EUV allows chipmakers to print smaller transistors, down to 3nm or even smaller, which are critical for producing the next generation of microchips. The company has pioneered several innovations that have strengthened its competitive moat, including advancements in immersion lithography, laser technology, and optical design. Furthermore, ASML is increasingly utilizing AI and machine learning to enhance the performance of its machines and improve the efficiency of semiconductor manufacturing.
As global trends in 5G, artificial intelligence (AI), cloud computing, and automotive electronics (particularly electric vehicles and autonomous driving) rise, the need for smaller, faster, and more efficient chips will continue to rise, which directly benefits ASML. It is the only supplier of EUV machines, creating a significant barrier to entry for potential competitors.
However, there are numerous risks and potential disruptions ahead.
China and Other RisksArguably, ASML’s massive 25% revenue passthrough to Earnings in Fiscal Year could be attributed to one important market for the company: China.
Amidst ongoing trade tensions between the U.S. and China, ASML’s technology poses a long-standing bone of contention between the two countries with the U.S., in particular, insisting on a bipartisan basis that China’s access to high-tech products and services be restricted. The U.S. has already imposed export restrictions on semiconductor equipment to China, including on ASML’s most advanced EUV machines. If the U.S. were to further limits China’s access to critical technology, ASML could lose out on a significant portion of its sales.
Companies like Nikon and Canon produce deep ultraviolet (DUV) lithography systems which – while not capable of the extreme miniaturization offered by EUV – are still widely used in chip production in the mid-to-lower-end market segments. Canon is also leading the push for mass implementation of nanoimprint lithography (NIL) – a potential rival to EUV – in semiconductor manufacturing. Fellow Japanese compatriot DNP (Dai Nippon Printing) and Austria-based EV Group (EVG) are also significant proponents of NIL technology.
While NIL hasn’t quite demonstrably matched EUV in scalability and performance, moderate-to-strong adoption might help create breakthroughs and cause a disruption in semiconductor manufacturing. ASML doesn’t yet have a foothold in NIL, thus creating an outsized disruption risk.
A New Way of Investing into ASML and ChipmakersOverall, ASML represents a growth story in the tech sector borne on decades of research and implementation resulting in over 33,000 patents being granted to the company since the early eighties, of which around 50% are estimated to be active. While the company has a strong competitive moat, its stock price is often volatile due to macroeconomic and geopolitical factors. Professional investors might consider the +3X Long ASML ETP (ASL3) and the -3X ASML ETP (ASMS) during bullish and bearish trends in the stock, which often resonates across the entire semiconductor industry.
Leverage Shares has an extensive catalogue of products offering professional investors exposure to the semiconductor industry. The +3X Long Nvidia ETP (NVD3) provides leveraged exposure to the performance of Nvidia’s stock and the -3X Short Nvidia ETP (NV3S) is an “inverse” alternative to NVD3. The +3X Long AMD ETP (AMD3) provides leveraged exposure to the performance of AMD’s stock while the -1X Short AMD ETP (AMDS) aims to deliver the same impact as holding a short position in AMD without the need to maintain a margin balance. Also available are the +3X Long Taiwan Semiconductor (TSMC) ETP (TSM3) and the -3X Short Taiwan Semiconductor ETP (TSMS). For a broader yet leveraged exposure, the +3X Long Semiconductor ETP (SMH3) and the -3X Short Semiconductor ETP (SMHS) are at hand.
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