ASML Shares Surge Following News of Possible Exemptions

ASML Shares, the largest maker of equipment used to manufacture computer chips, jumped on Wednesday following a Reuters report that signaled it may be spared many of the new U.S. restrictions being considered on exports to China.

The report indicated that the U.S. would exclude allies, including the Netherlands, where ASML is based, from new restrictions on equipment sales to half a dozen Chinese chipmaking plants. ASML shares were up 5.6% at 855.20 at 0955 GMT.

Market Reaction and Analyst Insights:

“Today’s news … alleviates the market’s concerns as ASML had nearly half of its sales from China in the first half of 2024,” said Mizuho Securities analyst Kevin Wang.

The share price surge in Europe’s biggest tech firm, with a market capitalization of more than 300 billion euros ($325 billion), is the latest example of trade policy and political moves affecting stocks rather than earnings or business plans.

Impact of Trade Policies:

Wednesday’s rise reverses part of a large drop on July 17 following a Bloomberg report that the U.S. was considering unilateral action to restrict equipment exports by allies, including the Netherlands.

This development obscured ASML’s largely positive second-quarter earnings, which featured growing orders for its most advanced equipment from key customer TSMC amid the AI boom.

Future Prospects:

“We believe strong demand and tight capacity for advanced nodes in logic (computer chips) will drive more orders for ASML in the coming quarters,” Wang added. ASML and the Dutch government declined to comment.

ASML holds a dominant position in lithography, the step of the chipmaking process in which the tiny circuitry of chips is created. Since 2020, U.S.-led restrictions on exports to China have covered much of the company’s product range, but more limitations remain possible.

Sales and Market Position:

The company asserts that while its technology leadership remains intact, its sales will grow along with the semiconductor industry, regardless of where chips are made.

However, around 20% of ASML’s current order backlog is for sales of its older product lines to China, theoretically vulnerable to changes in policy in the short run.

Shifts in Global Chip Manufacturing:

Sales to China have been key to ASML’s success over the past 18 months, as Chinese firms have snapped up equipment while few new plants in other regions have begun producing chips.

This trend is expected to reverse in 2025-2026 as new plants come online in Taiwan, South Korea, the United States, and Europe, many with support from the U.S. “Chips Act” and similar programs in other countries.