Why ASML Stock Is Falling and Where It Could Bottom

ASML and other semiconductor stocks are selling off after The Information (a fairly repubable source) reported that China has begun producing domestically developed immersion deep-ultraviolet lithography machines.

The development is very important, particularly for ASML’s business in China, however, the broader semiconductor reaction appears excessive because the reported production volumes are small and there is still no evidence that the Chinese systems are technically comparable to ASML’s machines.

China’s Initial Production Is Limited

China is reportedly targeting approximately five immersion DUV machines in 2026 and around 20 in 2027.

By comparison, ASML sold 279 DUV systems in 2025, including approximately 131 immersion systems, and expects to ship roughly 130 immersion systems in 2026.

China’s planned 2026 production would therefore represent less than 4% of ASML’s expected annual immersion shipments.

The market is not reacting to the immediate volume threat but to the possibility that China has started developing a credible domestic alternative in one of the most complex areas of semiconductor manufacturing.

That is a legitimate long-term risk, but a number of important questions remain unanswered.

There is currently no independently verified information showing that the Chinese machines can match ASML in areas such as:

• overlay accuracy
• wafer throughput
• uptime and reliability
• defect rates
• manufacturing yield

Producing a functioning immersion DUV machine deos not, however, prove technological parity with ASML.

The market has reacted similarly to Chinese technology announcements before. Remember DeepSeek? Investors initially assumed that China had rapidly closed the gap before the technology and its broader implications had been independently assessed.

The same caution should apply here.

The Risk to ASML Is Real but Manageable

DUV remains ASML’s main foothold in China because its most advanced EUV systems are subject to export restrictions.

A credible domestic DUV alternative could therefore reduce China’s dependence on ASML for mature-node semiconductor production and some pressure on ASML’s Chinese revenue and valuation is understandable.

China’s contribution to ASML’s revenue was already expected to decline to approximately 20% in 2026, down from around 33% in 2025. During the first half of 2026, China generated approximately €2.9 billion, representing around 16% of ASML’s total revenue.

However, this decline is being offset by strong AI-related demand for advanced logic and memory equipment. ASML raised its 2026 revenue guidance to €43–€45 billion, suggesting that demand outside China remains strong enough to support continued growth.

It is also important to distinguish between DUV and EUV technology.

Immersion DUV systems use a wavelength of 193 nanometres, while EUV systems operate at 13.5 nanometres. EUV is significantly more complex and remains essential for producing the most advanced semiconductors.

China developing a domestic DUV system does not mean it has replicated ASML’s EUV technology or eliminated ASML’s position in leading-edge semiconductor manufacturing.

Is the Semiconductor Sell-Off Overdone?

Some weakness in ASML is reasonable because the report introduces a potential long-term competitive threat in China.

The broader sell-off across semiconductor stocks looks less justified.

China’s reported DUV production is still extremely small, the technical performance of the machines remains unverified, and the development does not directly challenge the advanced AI logic and memory demand currently supporting the semiconductor-equipment industry.

The wider market is also facing substantial event risk this week, including the Federal Reserve decision and major technology earnings. The DUV report may therefore be acting as a catalyst for risk reduction in a market that was already vulnerable to volatility.

I am remaining cautious rather than immediately buying the decline.

According to current market positioning, the first important area to watch is around 1,600. A bounce could develop from that level. If it fails, 1,500 appears to be the next likely downside area, as there is currently relatively little positioning between those levels.