ASML, a Dutch designer and manufacturer of next-generation and next-generation lithography systems, lost 16% of its market capitalization in hours after accidentally leaking its lower-than-expected Q3 2024 revenue.

It remains the only company in the world with the technological know-how to manufacture and sell extreme ultraviolet (EUV) lithography machines that can produce 5nm or even 3nm chips.

Is the stock price drop simply a temporary shift in market sentiment or is it a sign of things to come?

Advance guidance showed that ASML’s sales forecast for 2025 came in much lower than analysts had been led to believe during the year. ASML also now expects its sales from China to decline, after accounting for about half of its revenue in the past.

The news gave ASML shares their worst day in 26 years. However, concerns about ASML’s performance began to materialize even before that. Since mid-July 2024, ASML shares have lost about 34% of their value.

There are two possible explanations for this. One is that ASML’s natural monopoly in high-end chip manufacturing equipment makes it susceptible to stronger market shocks when sentiment changes. The other concerns the tension between the US and China.

Since 2019, ASML has been banned from selling its most advanced line of EUV instruments to China, following a US-led campaign to slow down Beijing’s technological progress, which the US considers a national security threat.

In March 2024, reports emerged that the Dutch government had begun to slow down the licensing of ASML to provide maintenance services to certain Chinese lithography machines. If ASML is forced to take a hard line on this in the future, it will effectively render all ASML brand lithography machines useless in China as soon as they encounter a minor problem.

Furthermore, reports emerged in May that ASML was exploring the idea of ​​implementing “kill switches” in its EUV machines. These switches would essentially turn all ASML-branded EUV machines into furniture if purchased by uninvited guests.

Also in July 2024, news broke that the president of Eindhoven University of Technology, a top university in the Netherlands and a key pipeline for ASML talent, was questioned last year by the US ambassador to the Netherlands about the high number of Chinese students of the institution.

The Biden administration is also considering using what’s called a foreign direct product rule (FDPR) if ASML continues to sell advanced chip technology to China. The FDPR is a harsh trade provision that essentially states that if a product has been made using American technology, the US government has the power to stop its sale, including products made in a foreign country.

The story continues