BofA Downplays China DUV Breakthrough, Calls ASML Rout an Overreaction

Global chip stocks tumbled this week after a report that China had begun domestic production of immersion deep-ultraviolet (DUV) lithography machines, a technology long dominated by Dutch supplier ASML Holding NV. But Bank of America analysts described the selloff as an overreaction, arguing the threat to ASML’s competitive position is likely modest.

ASML shares in Amsterdam fell more than 8% on Monday, breaking below the 50-day moving average, according to reports. The selloff spread across Asia on Tuesday, with South Korea’s Kospi closing nearly 11% lower after triggering a circuit breaker. Index heavyweights Samsung Electronics and SK Hynix each lost more than 12% in a single session. Japan’s Nikkei slid about 4% to a two-year low, while the Philadelphia Semiconductor Index dropped 2.2% on Monday.

The rout was triggered by a report from tech publication The Information, which stated that a Chinese state-backed company had begun producing immersion DUV lithography machines. The Information did not name the company but said it plans to manufacture about five DUV machines this year and roughly 20 in 2027, and that it had assembled teams from other Chinese chip-equipment firms, including Shanghai Yuliangsheng Technology. The report noted that the immersion tools may use components from both China and Japan, potentially violating export control restrictions.

Bank of America analyst Didier Scemama commented on the report in a note to clients, according to Zerohedge. “The article suggests that China have brought together immersion DUV development teams from other Chinese companies but warns that DUV advances are still ‘at an early stage’,” Scemama wrote. He added that the leading domestic player, SMEE, has yet to demonstrate ArFi systems in high-volume production at 28nm or below.

Scemama assessed that replacing ASML would require a domestic alternative with comparable productivity, overlay and cost of ownership — “a high hurdle.” ASML’s NXT:1980Fi already delivers 330 wafers per hour and 2.5nm machine-matched overlay, while successive generations have further improved performance. “In leading-edge Chinese logic manufacturing, where EUV is unavailable and multiple patterning is required, even modest reductions in scanner performance could materially lower yields and increase cost per die,” the analyst wrote.

The BofA note concluded that Tuesday’s weakness was an overreaction and that current levels present an attractive opportunity. “China remains an important market for ASML, accounting for roughly 20% of group sales and 44% of DUV revenue in 2026,” Scemama said. 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, according to the note.

Other analysts also pointed to broader market anxiety. Morningstar analyst Jing Jie Yu said: “We believe the market was likely spooked by the progress of China’s chipmaking equipment capabilities, and was worried that this progress would threaten the competitive position of global chipmaking and chip equipment leaders.” 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 selloff extended beyond memory and equipment stocks. Nvidia fell 5% on Monday, wiping $250 billion off its valuation. The decline followed a Wall Street Journal report that the company is in talks to provide roughly $250 billion in financing guarantees for OpenAI as part of a massive data center project, stoking concerns about the sustainability of AI spending.

In China, memory-chip maker CXMT Corp. saw its shares fall as much as 7.7% on Tuesday before closing 4% lower. The pullback barely dented the stock’s 466% debut surge on Monday, which gave it a market value of roughly 3.3 trillion yuan ($487 billion), making it the most valuable company listed on a mainland Chinese exchange. CXMT’s rise reflects investor enthusiasm for China’s semiconductor self-reliance drive, supported by official data showing profits in the country’s chipmaking sector surged more than 2,500% in the first half of the year.

China’s memory-chip expansion is accelerating. CXMT, the world’s fourth-largest memory maker, is reportedly testing a pilot line for bonded DRAM in Hefei and developing HBM3 and HBM3E products. Its reported share of the global DRAM market reached 8% during the first quarter of 2026, and Apple is said to be considering CXMT as a supplier, according to reports.

The broader selloff also dragged down other Asian chip stocks. Japan’s Kioxia slumped 18%, Tokyo Electron fell 11%, and Taiwan Semiconductor Manufacturing Co. dropped 3%. The Taiex index declined 5%. Some markets showed signs of stabilizing on Tuesday, with the FTSE 100 gaining as tech sell-off pressures eased amid Middle East tensions.

The US has been probing ASML for months over concerns that one of its lithography machines may have ended up in Chinese hands despite US-led export controls. The BofA note warned that the report of Chinese DUV production suggests the leverage exerted by US and Western export controls over China’s access to advanced chips and chipmaking equipment could erode over time.