ASML Holding NV shares tumbled 5.13% during intraday trading on Tuesday, extending a sharp selloff that began in the prior session as investors reacted to a significant competitive development from China. The Dutch semiconductor equipment giant has been under intense pressure after reports emerged that a Chinese state-backed enterprise has commenced mass production of immersion deep ultraviolet lithography machines, a core technology long dominated by ASML.

The decline was triggered by a Reuters report confirming that Shanghai Aishengna Electronic Technology Group, a state-owned company, has begun manufacturing domestically developed immersion DUV lithography systems. These machines are the workhorse of chip manufacturing and a cornerstone of ASML's business. The Chinese company reportedly plans to produce approximately five units this year and scale up to 20 units by 2027, with deliveries expected to major Chinese chipmakers including SMIC, Hua Hong Semiconductor, and ChangXin Memory Technologies. While these initial volumes are dwarfed by ASML's delivery of 131 immersion DUV systems last year, the breakthrough signals a meaningful step toward China's semiconductor supply chain self-sufficiency, raising concerns about long-term demand erosion for ASML in one of its key markets.

Some analysts, however, view the selloff as overdone. Jefferies analysts noted that U.S. export restrictions pose a bigger threat to ASML than Chinese competition, while J.P. Morgan described the market reaction as "disproportionate," emphasizing that China has manufactured lower-end lithography equipment for years without impacting ASML's market share. Nonetheless, ASML's China revenue contribution has already declined from 19% in the first quarter to 14% in the second quarter, amplifying investor concerns over growth prospects. The broader semiconductor equipment sector also sold off heavily in sympathy, with Lam Research, Applied Materials, and KLA-Tencor all posting significant declines.