The way the AI trade has developed over the last two years has a subtle absurdity. Investors have poured money into NVIDIA, Broadcom, and Marvell, paying premium-on-premium multiples for the brands that appear in every AI headline. The company that actually manufactures those chips, without which TSMC could not produce an H100, is located in the quiet Dutch town of Veldhoven, posts margins comparable to those of NVIDIA, and trades at about half the multiple. The disparity between ASML Holding’s quality and valuation is beginning to look odd, and it has emerged as the most neglected monopoly in contemporary technology.
The majority of the story is revealed by the simple numbers. ASML generated $9.46 billion in net income and $32.21 billion in trailing revenue. That’s a net margin of about 29%, which is remarkable for an industrial company that relies heavily on hardware but falls short of NVIDIA’s stunning 53%. The forward earnings multiple for NVIDIA is more than 35x. Depending on the cycle, ASML’s forward multiple is typically quoted at 25x, but it is closer to 30x trailing earnings. The pricing reflects the idea that ASML is “just an equipment vendor,” which is analogous to referring to Boeing as “just a metal supplier.” It completely ignores the architecture.
The only device on the planet that can print the kind of microscopic circuitry needed for cutting-edge chips is what ASML actually sells. Their extreme ultraviolet (EUV) lithography systems etch patterns smaller than a virus onto silicon wafers using light with a wavelength of 13.5 nanometers, which is created by vaporizing molten tin droplets twice at 50,000 times per second. Each machine requires a small team of ASML engineers to install, costs more than $200 million, and requires about four 747 cargo flights to ship. They are manufactured by just one company worldwide. People are still taken aback when they hear that sentence for the first time.
The cleanrooms at ASML’s Veldhoven facility resemble precision laboratories rather than factories. Individual subsystems are manually assembled by workers dressed in full bunny suits. Some parts come from Zeiss SMT, a German optics company that doesn’t have a commercial rival for the mirrors needed by EUV. Because the supply chain is so small, a single supplier’s disruption could stop the production of advanced chips worldwide. Investors consistently underestimate this structural point. For EUV, ASML has no rivals. They are just EUV.
The market still views semiconductor equipment as cyclical capital expenditure rather than recurring infrastructure, which accounts for the valuation gap. There is some validity to that. At ASML, order patterns can be erratic. The picture of global demand has been clouded by China’s limited access to cutting-edge EUV systems. Real headline risk has been introduced by the political struggle over Dutch licensing and the export restrictions imposed by the United States. Even so, the analogy to NVIDIA reveals something. For NVIDIA to continue selling H100s and B200s, ASML must continue to exist. NVIDIA is not necessary for ASML to exist. All of the world’s advanced foundries, including TSMC, Samsung, Intel, and SK Hynix, must continue to make purchases.
It’s difficult to ignore the fact that some of the most well-known figures in tech investing have begun discussing ASML as the safer long-term option. The argument goes something like this: ASML wins if AI capital expenditures continue. ASML still prevails even if AI capital expenditures stop but the need for traditional logic and memory persists. Because every new fabrication plant requires ASML’s machinery, ASML stands to gain more than anyone else if geopolitical fragmentation compels all major economies to develop their own domestic chip capacity. AI is not really necessary for the bull case to continue accelerating. To continue to matter, it simply needs sophisticated chips.
There’s a sense that ASML will eventually be rated closer to where its durability, market position, and margins indicate it should be. It’s really unclear if that will occur this year or in three. The story that dominates CNBC chyrons and earnings transcripts is still that of NVIDIA. In contrast, ASML operates discreetly out of a Dutch town that is difficult for most American investors to locate on a map. However, Santa Clara is not home to the true architecture of the AI era. It resides in Veldhoven. The multiple will eventually begin to reflect that.
