Semiconductor capital-equipment names swung sharply on Monday, reversing early optimism and entering a sell-off after a report said China has started producing immersion deep ultraviolet (DUV) lithography tools at scale. The move followed a pre-market rally that had been driven by a combination of easing geopolitical tensions in Iran and a headline that Nvidia was negotiating to underwrite up to $250 billion in financing for an OpenAI data center project.
That upbeat start to the day evaporated almost instantly after The Information published a report saying a Shanghai-based, state-backed company - incorporating teams from startups such as Yuliangsheng Technology - has begun mass production of domestically developed immersion DUV scanners. According to the report, the company plans to deliver five DUV tools this year and 20 next year to Chinese customers including SMIC, CXMT and Hua Hong.
The report takes on added significance as the U.S. Congress advances the MATCH Act, legislation aimed at preventing China from buying or servicing the very DUV machines in question. If Beijing can produce those tools at home, the intended effect of U.S. export restrictions could be substantially weakened.
Market reaction and intraday dynamics
Markets reacted violently. Traders initially interpreted the report as evidence that China may have overcome a long-standing lithography bottleneck, threatening the broader semiconductor supply chain - including deposition, etch and inspection equipment. That fear triggered a synchronized sell-off: at intraday lows ASML, Applied Materials (AMAT), Lam Research (LRCX) and KLA Corp (KLAC) were down roughly 7% and lost billions in market value within minutes.
As the trading day progressed the selling pressure eased somewhat, with losses narrowing into the final hour. At the time markets began to stabilize, the shares were trading off by the following amounts:
- ASML: down approximately 5.75%
- Applied Materials (AMAT): down about 4%
- Lam Research (LRCX): off roughly 4.5%
- KLA Corp (KLAC): down near 3%
The late-session recovery was supported by a rapid wave of analyst commentary that sought to differentiate a prototype or early production milestone from an immediate, large-scale commercial displacement of incumbent suppliers.
Analyst responses: assessing the scale and immediacy of the threat
Bank of America analyst Didier Scemama characterized the day’s price action as "an attractive opportunity," maintaining a Buy rating and a price target of 2,452. Scemama argued the threat to ASML is "modest," noting that China’s domestic leader SMEE has not yet demonstrated high-volume production capability at 28nm or below. He emphasized that replacing ASML would require matching its extreme productivity and precision; for context he cited ASML’s NXT:1980Fi, which he said delivers 330 wafers per hour. Scemama estimated that even if China were to source 20 domestic tools next year, the impact on ASML sales would be about .4 billion, or roughly 2.4% of the company’s projected group sales.
JPMorgan analyst Sandeep Deshpande made a similar point, calling the market reaction "disproportionate." Deshpande stressed the difference between producing a small number of immersion DUV tools and creating machines that can be relied upon for high-volume manufacturing. He highlighted operational metrics that matter at scale - yield, overlay, throughput and multi-thousand-wafer reliability - and said that while the development increases long-term risk to ASML’s China revenue, it does not invalidate the company’s mid-term earnings outlook.
BNP Paribas analyst Jakob Bluestone framed the emergence of local lithography production as a structural response to demand rather than simply a competitive threat. Bluestone pointed to projections that DRAM capacity growth in China could add more than 500,000 wafer starts per month before 2030, a scale-up that would require several hundred ArFi tools. Given ASML’s global backlog and the physical limits on how many tools the company can supply, Bluestone argued that local manufacturing of lithography equipment may be necessary to support China’s planned output increase, even if it does not fully replace ASML.
What this means for markets and the supply chain
The immediate market reaction highlighted how quickly sector sentiment can shift when geopolitical and technological developments intersect. Traders moved from AI-fueled enthusiasm to rapid risk-off behavior on information suggesting China could begin to home-source key capital equipment. Analysts stepped in to contextualize the report, arguing that early production quantities and the gap in demonstrated high-volume performance reduce the immediacy of a commercial threat.
Still, the episode underscores two structural tensions noted by analysts: the strategic intent to localize critical tools inside China, and the practical limitations of replacing decades of installed technology and manufacturing know-how overnight. For now, markets appear to be weighing the difference between a technical milestone and an operational capability that can displace incumbent vendors at scale.
Summary
Shares of major semiconductor-equipment companies plunged after reporting that a Shanghai state-backed group has begun producing immersion DUV lithography machines for domestic customers, planning five tools this year and 20 next year. The news heightened concerns that U.S. export restrictions, embodied in legislation such as the MATCH Act, could be undermined if China can supply its own DUV tools. Traders drove steep intraday losses before analysts argued that early production does not equate to immediate mass-market replacement of suppliers like ASML.