U.S. Backs New Challenger to ASML’s Chipmaking Dominance

ASML USN070592100

The Dutch firm ASML currently enjoys a complete monopoly in the market for extreme ultraviolet (EUV) lithography systems, the highly complex machines essential for manufacturing the advanced semiconductors that power artificial intelligence. However, a strategic shift in U.S. industrial policy is introducing a potential long-term competitor. The U.S. government has signed a statement of intent to provide startup xLight with up to $150 million in funding to develop an alternative lithography technology. Investment bank Jefferies has identified this move as a long-term risk for ASML. The company's shares closed Friday at $1,098.50, just below their all-time high.

Behind the funding for xLight lies a clear geopolitical objective: reducing American reliance on foreign supply chains, even those from allied nations like the Netherlands. The startup is working on a lithography system based on synchrotron technology, which promises greater energy efficiency compared to ASML's established EUV machines. Analysts at Jefferies have labeled the development "a long-term negative," while also noting it does not pose an immediate financial threat to the industry leader. xLight remains technologically years away from commercial viability, whereas ASML is already shipping its next-generation High-NA EUV systems.

Strong Fundamentals Underpin a Premium Valuation

ASML's unrivaled market position—a 100% share in EUV lithography equipment needed for chips below 7 nanometers—has been a key driver for its stock, contributing to a gain of approximately 59% in 2025. The company's fundamental performance supports its valuation. For the third quarter, ASML reported a gross margin of 51.6% and confirmed full-year revenue growth of 15% compared to 2024. Its forward price-to-earnings ratio stands near 37, a premium that reflects its monopolistic status. This view is echoed by major financial institutions; JPMorgan recently raised its price target to $1,275, citing an "attractive valuation relative to monopoly status," while Morgan Stanley sees a fair value of $1,161.

A Dual Outlook for Investors

ASML's stock is currently consolidating slightly below the psychologically significant $1,100 level. Sentiment among market experts remains overwhelmingly positive, with 41 out of 42 analysts rating the shares as a "Buy" or "Overweight." In the near term, the company continues to benefit from AI-driven demand and a memory super-cycle. The long-term picture, however, now includes a new variable: the growing geopolitical pursuit of technological sovereignty.

Investors will gain further clarity when ASML provides its business outlook for the coming year alongside its Q4 2026 results in January. Management has already signaled that guidance for 2026 will not fall below 2025 levels. Until then, discussions regarding state-funded alternatives are likely to influence valuation debates, even though ASML's technological lead remains firmly intact for the foreseeable future.