Upheaval in chip stocks: this is how one report brings down the sector

DUV lithography machines are actually the “machines that print” the tiny circuits on the silicon wafers from which chips are made. This is a technology that is considered essential for the production of advanced chips.

● The chip stock that jumped 470% on its first day of trading
● Report: Nvidia in talks with OpenAI to grant a financial guarantee of 250 billion dollars

ASML imitated increases of more than 2% recorded before the opening of trading, and also dragged down the shares of Applied Materials , Lam Research and KLA. Earlier, the sector benefited from optimism following the calm in the Middle East and it was reported that Nvidia discussed funding of approximately 250 billion dollars for the OpenAI data center project.

According to The Information’s report, the Chinese company, based in Shanghai, was able to establish production lines for DUV machines using development teams from other local companies. If the report turns out to be true, it would be a significant advance in Beijing’s efforts to establish an independent chip supply chain and reduce dependence on Western technology.

Beijing is reducing domestic alternatives

They argue that the export restrictions imposed by the US and the Netherlands on China accelerated the development of the local chip industry – the sanctions imposed by the US on exports to China were intended to slow down China’s technological progress by blocking access to ASML’s advanced machines.

If the reports of domestic production of DUV machines turn out to be true, it means that Beijing has been able to speed up the development of domestic alternatives.

From the point of view of investors, this is a particularly problematic scenario: Western companies may lose their income from the Chinese market, while the geopolitical goal of halting China’s technological progress will not be achieved.

For ASML, this is a particularly significant threat. After it was banned from selling the advanced EUV machines to China, the old DUV machines became a major source of income from the Chinese market. If China’s chipmakers are able to acquire local machinery, ASML could lose one of its remaining important growth engines in the country.

Although Lamm Research, Applied Materials and KLA do not manufacture lithography machines, they provide equipment for other essential steps in chip manufacturing, such as coating, etching and quality control.

If China has succeeded in overcoming the most complex technological bottleneck, lithography, it may, so they fear, in the future also develop local alternatives for the rest of the production equipment, thus significantly reducing the potential market for Western companies in China.