UBS Group’s latest research indicates that China’s technological maturity in extreme ultraviolet (EUV) lithography systems is currently only roughly equivalent to ASML’s level in 2004, making it unlikely that Beijing will produce a commercially viable product capable of replacing ASML within the next decade. However, China is advancing considerably faster on immersion deep ultraviolet (DUV) systems and could establish large-scale manufacturing capability within as little as two to five years, placing time pressure on the Netherlands’ existing export control tools.

The assessment comes from a team led by UBS analyst Francois-Xavier Bouvignies, who reviewed China’s patent activity in areas such as light sources and laser subsystems. “They [China] appear to be at a similar stage to ASML in 2004,” the analysts wrote in their report. ASML did not begin volume production of EUV systems until roughly 15 years later, leading UBS to conclude that China is unlikely to break through the bottleneck of producing the most advanced chips in the near term.

The assessment comes against the backdrop of China’s state-directed, covert program in Shenzhen to develop a domestic EUV lithography system. Given the massive mobilization of resources and its immense strategic importance, the project has been dubbed China’s “Manhattan Project.” Last December, a Reuters investigation found that Chinese scientists at a heavily guarded laboratory in Shenzhen had built what Washington has spent years trying to prevent — a prototype EUV machine that could potentially produce advanced chips. People familiar with the matter said China reverse-engineered ASML’s extreme ultraviolet exposure machines.

Currently, ASML’s EUV systems are supplied only to U.S. allies, including Taiwan, South Korea, and Japan. The United States began pressing the Netherlands in 2018 to block ASML from selling EUV equipment to China; in 2022, the Biden administration further expanded export controls, cutting off China’s access to advanced semiconductor technology altogether.

Immersion DUV Progress Is Far Faster Than EUV

Compared with the slow progress on EUV systems, China’s pace in immersion DUV is far more noteworthy. UBS estimates that China could establish large-scale manufacturing capability within two to five years, though the forecast carries uncertainty given the difficulty of assessing the actual performance of the equipment and the completeness of China’s semiconductor supply chain.

While immersion DUV is less advanced than EUV, it remains a critical tool in chip manufacturing, using light to transfer fine circuit patterns onto silicon wafers. Each of ASML’s immersion DUV systems sells for close to $90 million (approximately NT$2.8 billion), while EUV systems cost more than $200 million (approximately NT$6.3 billion) per unit.

Since September 7, 2024, the Dutch government has required export licenses for immersion DUV systems such as the NXT:1970i and NXT:1980i; more advanced models like the NXT:2000i and subsequent generations were already subject to Dutch government controls. However, if China achieves volume production of immersion DUV systems within two to five years, the Netherlands’ most practically impactful export control tool could gradually lose effectiveness before China narrows the EUV technology gap.

ASML CEO Christophe Fouquet said in 2024 that justifying equipment export restrictions on national security grounds is becoming increasingly difficult, and that the measures carry economic considerations.

China Market Still Weighs on ASML Operations

China has been aggressively channeling state funding to bolster its domestic semiconductor industry in hopes of reducing reliance on foreign technology, but export restrictions on advanced equipment continue to slow its development. At the same time, China remains a critical market for ASML, accounting for 42% of net sales in the third quarter of 2025. ASML has previously warned that its China business could decline sharply this year.

Still, ASML posted net sales of €8.8 billion (approximately NT$320 billion) and net profit of €2.8 billion (approximately NT$100 billion) in the first quarter, and maintained its full-year revenue guidance of €36 billion to €40 billion (approximately NT$1.5 trillion). The company’s shares fell 1.6% in Amsterdam on Tuesday.

In the U.S. market, ASML’s American depositary receipts (ASML-US) closed down 1.82% at $1,665.14 on Tuesday, in line with the broader market. The stock hit an intraday low of $1,651.21 and a high of $1,683.74, with volume of roughly 905,700 shares, below the average of approximately 1.85 million shares.

Wall Street Remains Broadly Bullish on ASML

Despite lingering concerns over Chinese competition, Wall Street remains broadly optimistic about ASML’s outlook. Bouvignies recently raised his ASML price target from €2,250 to €2,350 (approximately NT$86,000), implying roughly 55% upside. At that valuation, ASML would become the first European company to surpass a $1 trillion market capitalization (approximately NT$31.6 trillion). The company’s current market value stands at roughly $667 billion (approximately NT$21.1 trillion).

Bouvignies believes the competitive threat from China is overstated. “Our base case remains that China will not achieve EUV systems within the next 10 years,” he wrote in his research note. He further emphasized that even if the technology improves, Chinese equipment is likely to lag in yield and throughput efficiency, and regulatory restrictions mean such systems are unlikely to be widely deployed outside China.

From a fundamental standpoint, Bouvignies projects ASML’s earnings per share to grow at a 31% compound annual rate through 2030, reaching €92.9 per share (approximately NT$3,400). Key catalysts include expanded equipment deployment, enhanced pricing power, and growing demand from memory chipmakers.

On valuation, ASML currently trades at roughly 30 times earnings, higher than Nvidia’s 17 times, but Bouvignies argues it remains an attractive entry point. He notes that ASML currently carries only a 1% premium relative to U.S. semiconductor equipment peers including Lam Research, KLA, and Applied Materials, compared with an average premium of 67% over the past 15 years.

Wall Street’s overall consensus is a “moderate buy,” with an average price target of $1,970.33 (approximately NT$62,000). JPMorgan recently raised its target to $2,400 (approximately NT$76,000) and maintained an “overweight” rating; Barclays and Deutsche Bank rate the stock “overweight” and “buy,” respectively; Jefferies maintains a “hold.” Among analysts covering the stock, 4 recommend strong buy, 21 recommend buy, 4 recommend hold, and 3 recommend sell.

UBS’s analysis shows that China still has some distance to go before catching up to the world’s most advanced EUV technology, but on immersion DUV systems, import substitution may arrive sooner than widely expected. For Europe, the real concern is not just when China catches up on EUV technology, but how long the effectiveness of existing export controls can be sustained.