The "Invisible Winner" in the AI Arms Race: ASML

As the global artificial intelligence boom sweeps across the world and market attention focuses on chip giant Nvidia, ASML, which is in the upstream supply chain, is becoming an indispensable, stealth winner in this trillion-dollar arms race thanks to its absolute monopoly in the lithography machine sector. This Dutch tech giant not only controls the critical "money-making machines" for manufacturing high-end AI chips but is also poised to see explosive growth with the surge in capital expenditure by chip manufacturers.

ASML will release its financial report this Wednesday (January 28), and investors are closely watching its sales projections. Driven by tight chip supplies and signs of increased customer investment, ASML’s stock price has doubled since April of last year, jumped 25% this month, surpassed a market value of $500 billion, and remains Europe's most valuable tech company. According to media reports, Morgan Stanley has maintained its "overweight" rating and set a target price of 1,400 euros, expecting fourth-quarter order data to far surpass market expectations.

The market focus is shifting from short-term performance to long-term growth potential. Morgan Stanley’s analyst team predicts that ASML’s Q4 order volume may reach 7.27 billion euros, significantly higher than the previous market forecast of 5 billion euros. Analysts point out that the market has largely priced in expectations of moderate growth for 2026, and investment logic is quickly turning to 2027, which is expected to be a key breakout year for ASML, with revenue likely to increase by 28% year-on-year.

This optimistic outlook is strongly supported by the capital expenditure plans of downstream chip manufacturers. As demand for AI-related cloud services soars and memory chip shortages drive up prices, major customers—including TSMC, Samsung, and SK Hynix—plan to significantly ramp up capital expenditures in 2026 to boost capacity. As the core supplier of lithography systems, ASML will directly benefit from this investment frenzy aimed at staking a claim to future computing power supremacy.

Monopolizing EUV technology, “the only player”

ASML's central role in the supply chain stems from its exclusive control of Extreme Ultraviolet (EUV) technology. EUV lithography machines use a beam only 13.5 nanometers thick—which, by comparison, is about 80,000 to 100,000 times thinner than a human hair—to print tiny circuits onto silicon wafers. This precise equipment is essential for producing the high-end microprocessors designed by companies such as Nvidia.

John West from semiconductor consultancy Yole Group notes that in the EUV field, ASML is “the only player in town.” Analyst estimates indicate that, thanks to its high-throughput machines, ASML controls roughly 90% of the lithography systems market and is the exclusive manufacturer of EUV technology. In this process, tin droplets are vaporized by a laser 50,000 times per second to produce the required light source.

This technological monopoly allows ASML to closely follow in the footsteps of chip design giant Nvidia and claim a share of the trillions of dollars of value created by the global AI arms race. Although ASML faces competition from Nikon, Canon, and China’s SMEE in the low-end Deep Ultraviolet (DUV) market, experts believe its dominance in advanced chip manufacturing will remain unshaken for years to come.

Downstream giants unleash capital expenditure frenzy

To meet surging AI chip demand, major chip manufacturers worldwide are greatly increasing capital expenditures, directly benefiting ASML. Analysts estimate that about a quarter of chip manufacturers’ capital expenditure goes to lithography equipment, and this proportion may be even higher for AI chips.

According to Reuters citing LSEG data and analyst estimates, the spending plans for 2026 by leading manufacturers are as follows:

TSMC: ASML’s largest customer, plans to increase capital expenditure by 37% to $56 billion.Samsung: Expected to raise spending by 24% to $40 billion.SK Hynix: Plans to boost spending by 25% to $22 billion.Micron: Expected to increase spending sharply by 45% to $20 billion.

Strong demand from companies like Apple, Google, and Broadcom is further fueling this trend. Mizuho analyst Kevin Wang also notes that China business is expected to grow in 2026. Dan Hutcheson, senior researcher at TechInsights, vividly analogized that for chip makers investing tens of billions in adopting ASML tools, switching suppliers is like changing the engine of a Formula One car mid-race—extremely risky.

2027: An explosion in performance and the ultimate capacity test

According to Morgan Stanley’s analysis, while market expectations for 2026 center on revenue growth of about 10% and stable gross margin at roughly 52.5%, the real investment opportunity lies in 2027.

The bank predicts that driven by three major factors, demand for EUV tools may reach 80 units in 2027, pushing revenue to 46.769 billion euros and raising gross margin to 56%. The three drivers include: TSMC’s early expansion of A14 process capacity, large-scale catch-up investment by DRAM manufacturers, and a rebound in demand from logic chipmakers including Intel and Samsung.

However, this explosive growth also comes with potential supply bottlenecks. ASML’s current cleanroom space aligns with the target of around 90 units of Low-NA EUV tool output by the end of 2027. If 2027 demand really spikes to 80 units, excess capacity will be very limited. Analysts warn that due to technical constraints, ASML cannot simply convert DUV production lines to EUV; to surpass an annual output of 100 units, new cleanrooms must be built, requiring time and significant capital investment.

Notably, the upcoming financial report will be the last time ASML releases quarterly order data. Starting next quarter, the company will only provide annual backlog updates, making the order numbers disclosed this time especially crucial for investors seeking to infer future trends.

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