ASML’s Balancing Act: Chip Diplomacy Opens Doors as Huawei Maps an EUV-Free Future

Huawei reveals LogicFolding for 1.4nm chips without EUV by 2031, challenging ASML. Simultaneously, Netherlands-South Korea cooperation strengthens ASML's role in AI ecosystems.

The Dutch lithography giant finds itself at the center of two very different narratives. One is a story of deepening geopolitical alliances and expanding chip ecosystems; the other, a tale of engineering defiance born from sanctions. Both are shaping how investors view ASML’s €1,400-plus stock.

Huawei’s surprise unveiling of its “LogicFolding” architecture at a Shanghai semiconductor conference has injected a fresh layer of strategic uncertainty into the ASML thesis. The Chinese company’s declared goal is to manufacture chips at the 1.4-nanometer level by 2031 — without using the extreme ultraviolet (EUV) lithography systems that are ASML’s crown jewel. The approach, which Huawei calls “Tau Scaling Law,” shifts the focus from shrinking transistors to improving data transfer and latency within the chip. He Hui, a semiconductor research director at Omdia, describes the pivot as “a credible path to extract more performance when leading-edge lithography is unavailable.”

Skepticism, however, remains warranted. Neil Shah of Counterpoint Research warns that the LogicFolding concept is “still unproven at scale” and could introduce significant thermal and packaging complexities that depress manufacturing yields. Huawei’s chip chief He Tingbo has not disclosed how production would actually work without EUV tools. Still, the company claims it has already developed and mass-produced 381 chips using related techniques over the past six years. The first commercial Kirin processors based on the new architecture are slated for the Mate 90 smartphone series later this year, with plans to incorporate LogicFolding into Ascend AI chips by 2030 and eventually deploy them in large-scale data-center clusters.

By contrast, TSMC is already targeting 1.4-nanometer mass production for 2028 — three years ahead of Huawei’s roadmap. That timeline gap underscores the enormous technological challenge Huawei faces. But the very existence of a sanctioned alternative raises a long-term question for ASML: could a future where leading-edge logic is partly built without EUV erode the moat that ASML has spent decades constructing?

On a separate front, ASML is seeing its strategic relevance reinforced through government-level chip partnerships. Reports from late May detail plans by South Korea and the Netherlands to broaden their semiconductor cooperation beyond EUV lithography, with silicon photonics emerging as a potential next field of collaboration. The rationale is straightforward: AI data centers are demanding ever more bandwidth and energy efficiency, fueling need for new chip architectures and the fabrication technologies that support them. For ASML investors, this is not a concrete order or a confirmed revenue stream from silicon photonics — it is a signal that the semiconductor ecosystem around AI infrastructure is widening, and that ASML remains the reference point in the conversation.

Amid these crosscurrents, the company’s financial foundation remains solid. ASML generated €8.8 billion in revenue and €2.8 billion in net profit in the first quarter of 2026, with a gross margin of 53.0%. For the full year, management guided revenue between €36 billion and €40 billion, and a gross margin of 51% to 53%. The second-quarter outlook calls for revenue in the range of €8.4 billion to €9.0 billion. ASML also bought back roughly €1.1 billion of its own shares in the first quarter, part of a program of up to €12 billion announced in January.

The stock itself has been on a tear. Trading near €1,403, it sits just below its 52-week high and has rallied almost 42% year-to-date — some analyst updates cite a gain of around 44% from a slightly later snapshot. Bernstein’s Qingyuan Lin maintains a buy rating with an unchanged price target of €1,700, signaling that the market is largely pricing in the AI investment wave without significant concern about Huawei’s alternative architecture.

Export controls remain the overarching wild card. ASML has deliberately set its full-year guidance range wide enough to accommodate various outcomes from ongoing export-control negotiations. That is not a sign of complacency, but it does indicate that management has baked political risk into its numbers. The Huawei LogicFolding salvo may not be an immediate threat, but it reminds investors that the geopolitical walls ASML operates inside can also create new competitors — and that the real test will come when the first Kirin chips powered by the new architecture hit the market.