Bank of America Sees ‘Over-Reaction’ in ASML Selloff, Says China DUV Threat Modest

Global semiconductor stocks continued their sharp selloff Tuesday after a report that a Chinese state-backed company had begun producing immersion deep-ultraviolet (DUV) lithography machines, a technology previously dominated by Western firms. Bank of America, however, downplayed the threat to industry leader ASML Holding NV, calling the market’s reaction overdone.

The report, published by tech publication The Information, said a Chinese state-backed company had started manufacturing immersion DUV lithography tools. The firm is expected to deliver about five machines this year and roughly 20 in 2027 to domestic chipmakers, including SMIC, CXMT and Hua Hong, according to the report. The Information said the company assembled teams from other Chinese chip-equipment firms, including Shanghai Yuliangsheng Technology.

The news triggered a broad selloff in Asia. South Korea’s Kospi index closed 11% lower, triggering its eighth circuit breaker of the year. Heavyweights Samsung Electronics and SK Hynix fell 13% and 15%, respectively, on the day. In Japan, the Nikkei 225 declined 4%, while memory-chip maker Kioxia slumped 18%. Taiwan’s Taiex fell 5% as Taiwan Semiconductor Manufacturing Co. dropped 3%.

In Europe, ASML shares fell more than 8% on Monday, their steepest one-day decline in over a year, breaking below the 50-day moving average. Rivals ASM International and BE Semiconductor also dropped more than 7% and nearly 10%, respectively.

The selloff extended to the U.S. Monday, where Nvidia fell 5%, wiping about $250 billion off its market value. Sandisk and AMD also declined.

**BofA: “Attractive Opportunity”**

Bank of America analyst Didier Scemama told clients the report, while significant, does not pose an immediate threat to ASML’s competitive position. According to Scemama, the reported Chinese DUV advances remain “at an early stage,” and the domestic leader, SMEE, has yet to demonstrate ArFi systems in high-volume production at 28nm or below.

“China is a major market for ASML but threat likely modest,” Scemama wrote. He noted that China accounted for roughly 20% of ASML’s group sales and 44% of DUV revenue in 2026. Replacing ASML would require a domestic alternative with comparable productivity, overlay and cost of ownership, which “remains a high hurdle.”

Scemama highlighted ASML’s NXT:1980Fi machine, which delivers 330 wafers per hour and 2.5nm machine-matched overlay, and said successive generations have further improved overlay performance. Even modest reductions in scanner performance could materially lower yields and increase cost per die in leading-edge logic manufacturing, where EUV is unavailable and multiple patterning is required.

“We think today’s weakness is an over-reaction and see current levels as an attractive opportunity,” Scemama wrote.

**China’s Chip Push Intensifies**

The report comes amid a broader push by China to build a homegrown semiconductor industry. Official data showed profits in China’s chipmaking sector surged more than 2,500% in the first half of the year. Chinese memory-chip makers have significantly sped up capacity-expansion plans, according to Bernstein analyst Qingyuan Lin.

On Monday, China’s CXMT Corp. made a blockbuster debut on the Shanghai Stock Exchange, surging 466% to give it a market value of roughly 3.3 trillion yuan (about $487 billion), making it the most valuable company listed on a mainland Chinese exchange. The stock slipped 4% on Tuesday but held on to the vast majority of its gains.

The Information report also noted that Chinese memory-chip makers are closing the technology gap with South Korean rivals. CXMT is reportedly testing a pilot line for bonded DRAM in Hefei, a technology that could deliver higher density and performance using older DUV equipment, reducing dependence on advanced EUV machines restricted by U.S. export controls.

**Market Jitters Over AI Trade**

The broader selloff reflects growing investor unease about the huge capital flows into artificial intelligence and the increasingly intertwined financial ties among chipmakers, cloud providers and AI developers. Analysts warned that the “AI trade” that had driven markets for years could now be unwinding.

Stephen Innes of SPI Asset Management said the downturn was not a sign of collapsing demand, but rather a shift in market sentiment. “What has changed is the market’s willingness to capitalise those promises at almost any price,” he said. “The AI trade spent the past several years behaving like a flywheel…Now that same wheel is beginning to throw investors off at speed.”

Bank of America’s Scemama added that domestic DUV machines could eventually increase DRAM and NAND production in China, strengthening suppliers such as CXMT and YMTC while helping alleviate the global memory crunch. However, he cautioned that the report also suggests ASML’s long-term competitive position could face growing pressure, and that the leverage exerted by U.S. and Western export controls over China’s access to advanced chips and equipment could erode over time.