Overview
BofA Securities has reiterated its Buy recommendation and Top Pick ranking for ASML, the Dutch maker of advanced lithography systems, arguing that recent market pullbacks driven by reports of Chinese progress on DUV immersion equipment amount to an overreaction and may offer investors an attractive entry point.
Media reports and Chinese DUV activity
The bank’s stance follows media reports that China may have begun producing deep ultraviolet (DUV) immersion lithography tools. Those reports indicate collaborative efforts among development teams at multiple Chinese companies, and identify Yuliansheng Tech as planning to deliver five DUV immersion tools this year and 20 next year to domestic customers that reportedly include SMIC, CXMT and Hua Hong. The coverage also suggests the immersion machines could incorporate components sourced from China and Japan, a detail the report says could raise questions about export-control compliance.
BofA’s assessment of the competitive threat
Despite acknowledging China’s importance to ASML’s business, BofA characterises the competitive threat as modest. The bank cites China’s contribution to ASML sales - roughly 20% of group sales and 44% of DUV revenue in 2024 - but stresses that any domestic replacement would need to match ASML on key metrics including productivity, overlay performance and cost of ownership, which it considers a high hurdle.
BofA highlights that the leading domestic player, SMEE, has not yet demonstrated ArFi systems running in high-volume production at 28nm or below. Reports of a Chinese breakthrough on EUV have also not produced a commercial product, the bank notes.
Technology and revenue context
The bank reiterates technical advantages that support ASML’s position. For example, ASML’s NXT:1980Fi is cited as delivering 330 wafers per hour and achieving a 2.5nm machine-matched overlay, with successive product generations further tightening overlay performance.
BofA quantifies the upside to its argument: even an outcome in which China sources 20 ArFi tools from local suppliers would reduce ASML sales by an estimated 31.4 billion, equivalent to about 2.4% of group sales in the following year, according to the bank’s calculations.
Relative valuations and market view
The bank also observes that U.S.-based semiconductor equipment companies already face domestic competition in areas such as deposition, etch and inspection, yet trade in line with or at a small premium to ASML despite ASMLs de facto monopoly on EUV and ArFi tools. From BofAs perspective, current ASML share-price levels represent an attractive buying opportunity.
Recent company performance
ASML recently reported second-quarter 2026 results that exceeded analyst expectations, with revenue of $10.67 billion and earnings of $8.69 per share. Following that report, the company raised its full-year sales outlook, and both RBC Capital and Deutsche Bank raised price targets after citing robust unit demand and an improved margin outlook.
Key points
- BofA retains Buy and Top Pick ratings on ASML, seeing recent China-related headlines as an overreaction.
- China accounted for roughly 20% of ASML group sales and 44% of DUV revenue in 2024, making it a meaningful market.
- ASMLs technical lead - including NXT:1980Fi performance metrics - and the difficulty of matching its productivity and overlay are central to BofAs bullish stance; sectors affected include semiconductor capital equipment and foundry customers.
Risks and uncertainties
- Ongoing reports of Chinese domestic DUV immersion production and component sourcing could create regulatory or supply-chain complications - a risk for export-control compliance and for equipment suppliers and buyers.
- Domestic suppliers such as SMEE have yet to show ArFi systems in high-volume production at 28nm or below, leaving uncertainty around the timeline and extent of any displacement of foreign vendors; this affects capital equipment makers and foundries.
- Even limited local sourcing of ArFi tools in China would have a measurable revenue impact - BofA estimates a 31.4 billion reduction in ASML sales, or about 2.4% of group revenue next year, if 20 tools are acquired locally.
Conclusion
BofAs analysis frames recent headlines about Chinese progress in lithography as a headline-driven market reaction rather than evidence of an immediate, material threat to ASMLs technological lead or revenue trajectory. The bank points to ASMLs performance metrics, the high bar for domestic alternatives, and recent quarterly results as the basis for maintaining its Buy and Top Pick status.