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Libertarians love to cite President Ronald Reagan’s claim that the scariest words in the English language are “I’m from the government, and I’m here to help.” Investors in chipmakers know the feeling. The whims of politicians threaten to puncture their exuberant expectations.
ASML, the Dutch company with a de facto monopoly on machines that make high-end silicon, went into a share-price tailspin on Tuesday after cutting its 2025 revenue forecast. By Wednesday the company had lost 20 per cent of its market value, or about €65bn, leaving it at €250bn — still equivalent to one-quarter of the Netherlands’ GDP.
One problem is that some customers have fallen on hard times and pushed back orders. ASML’s extreme ultraviolet machines, at up to $380mn apiece, aren’t exactly an impulse purchase: next year it expects to sell 50 tools rather than the 80 it previously hoped. The chip-intensive artificial intelligence boom remains intact, but only accounts for 15 per cent of ASML’s sales, UBS analysts reckon.
The other obstacle — and a harder one to quantify — is the effect of global chip wars. ASML sells about half its equipment to China. Those sales could fall by one-third next year, it warns. Some comes from cooling demand and some from the risk of export controls, as governments from The Hague to Washington curb sales of products to China.
How much of each it expects, the company isn’t saying. No wonder: politicians are hard to predict. Since China buys kit with higher profit margins than ASML’s average sale, that hurts future earnings.
Political risk has always been part of the chip sector. From the foundation of global chipmaking supremo Taiwan Semiconductor Manufacturing Company to the military budgets that fed Intel’s precursors, national interests — and overt subsidies — shaped the industry.
Sovereign buyers are also juicing demand as countries move towards building domestic AI infrastructure. Nvidia expects at least $10bn of spending on chips by “sovereign AI” investors this year, versus zero last year. Cerebras, an Nvidia rival, is pitching for Middle Eastern petrodollars.
True to Reagan’s remark, help comes in welcome and unwelcome forms. Being a national champion, or in ASML’s case a high-tech monopolist, is helpful. But it creates the risk that a company becomes a tool in a bigger diplomatic battle.
That, more than a near-term adjustment to chip shipments, may explain why ASML’s valuation has taken a knock. Still, the company is trading at 25 times estimated earnings and AI chip titan Nvidia hit a record $3.4tn in market value this week. Investors may still underestimate the extent to which governments can show up not offering help, but demanding it.
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