By Adam Clark

There should be few companies better placed to benefit from the artificial-intelligence boom than ASML Holding. The Dutch company has a near-monopoly on the specialized lithography machines used to produce the high-performance chips used in data centers, a business booming like never before.

ASML's American depositary receipts are up 11% over the past year. However the gain lags far behind other companies in the AI supply chain, hampered by a warning that it can't guarantee growth in 2026.

The company has one big problem. ASML has a limited number of big customers for its newest extreme ultraviolet lithography (EUV) machines and right now, one of them-- Taiwan Semiconductor Manufacturing (TSMC)--is dominant in advanced chip manufacturing. That's a worry because ASML thrives when chip makers battle for supremacy, upgrading their gear to stay ahead.

ASML now sells a new generation of "high numerical aperture" EUV machines, or High NA EUV. It is the sole supplier and expects the tools to enable ever-smaller chips for the next decade. However, they can cost more than $400 million each.

TSMC is apparently balking at the price. An executive said in May at an industry conference the chip maker believes it can extend the life of its current EUV machines.

"TSMC will deploy high-NA EUV when it is mature and ready to deliver maximum benefit to our customers," the Taiwanese company told Barron's in an emailed statement.

The issue boils down to upfront costs versus running costs. The numerical aperture of a lithography system is a measure of its ability to collect light and resolve fine details. A higher NA allows for the printing of incredibly complex structures on a chip in a single exposure, so-called single patterning. A lower NA machine can achieve the same thing in more steps, called multipatterning, but at the cost of more time and a greater chance of introducing defects.

So far, multipatterning seems to be winning the day. Barclays analyst Simon Coles expects ASML to ship just three High NA machines in 2026, down from five in 2025, with widespread adoption unlikely before 2028. He has a Hold-equivalent rating on the stock.

ASML declined to comment on how many High NA shipments it is forecasting but said all its EUV customers have committed to adopting the technology.

"High NA can unlock the benefits of single patterning in a cost-effective way. These benefits include reduction in process complexity, cycle time, potential yield learning, etc," an ASML spokesperson told Barron's in an emailed statement.

Intel looks like ASML's big hope. The American chip company is currently paying the price for a historic mistake when it was slow to transition to using the Dutch company's EUV machines and let TSMC steal a march in more advanced chips.

There appears to be an opportunity for Intel to rectify its past errors. Former CEO Pat Gelsinger said last year that Intel had acquired two High NA machines as part of his strategy to outcompete TSMC for business manufacturing AI chips and other advanced processors. But it's also a big financial risk at a time when Intel is weakened.

"High-NA adoption alone is not the only deciding factor [for Intel]," said Futurum Group analyst Ray Wang. "The success depends on multiple factors including ability to master the use of EUV, yield learning curves, ecosystem readiness, overall capacity, cost competitiveness, and the ability to secure a broad customer base beyond internal products."

Securing big external customers for chips is a particular problem for Intel. Shareholders had hoped its 18A manufacturing process--which is being tested by Nvidia and Broadcom, according to reports--would allow it to take back the technological lead from TSMC.

However, Intel has played down hopes of winning any major external customers and said 18A will primarily be used for internal products, at least initially. Intel has also said it might "pause or discontinue" its next-generation 14A process if it can't win a significant customer. That would likely mean an end to Intel's ambitions of becoming a serious rival to TSMC and U.S. hopes of having a domestic semiconductor champion.

The recent news that Intel will receive a $5 billion investment from Nvidia appeared to excite the market over its chip-manufacturing future. ASML stock jumped more than 6% on the news. However, Nvidia CEO Jensen Huang repeatedly avoided answering whether his company would use Intel's fabrication facilities in future, as he praised TSMC's capabilities.

"TSMC makes the most complex chips in the world, which are Nvidia GPUs. If TSMC tells you we don't need [High NA EUV], it's really hard to imagine why Intel would need a machine which is a lot more complex than TSMC to make chips that are a lot less complex," said Nicolas Baratte, an independent technology analyst.

Intel confirmed to Barron's it has two High NA machines at its primary research-and-development site in Oregon but declined to comment on when it intends to use them for mass production.

If ASML can't rely on Intel challenging TSMC in the logic chip business, one potentially fruitful area is memory chips.

The memory-chip business has lagged behind the logic-chip industry in adopting the latest lithography techniques. That is partly due to a focus on low-cost manufacturing but also the ability to stack memory-chip layers to improve density and performance, reducing the need for EUV machines.

There are signs that could change. High-bandwidth memory (HBM) chips are a necessary component of the latest AI processors from the likes of Nvidia and there is a race on to produce the most advanced HBM products. South Korea's SK Hynix is the current leader and it said earlier this month it had assembled a High NA system, which it claimed was the industry's first for mass production, citing the need to prepare for extreme scaling and high-density requirements.

That could put pressure on memory-chip rivals Samsung Electronics, also from South Korea, and U.S. company Micron Technology to respond.

A spokesperson for Samsung said it adopted High NA systems in February this year and is using them for both its memory-chip business and chip manufacturing for external clients, in an emailed statement to Barron's. Micron didn't respond to a request for comment on its plans.

ASML is a reminder that simply having the best technology isn't a guarantee of success, if a supplier is left at the mercy of a dominant customer. Eventually its High NA machines will become a necessity but investors could face a frustrating wait until the industry is ready to pay for the future.

Write to Adam Clark at adam.clark@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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September 29, 2025 00:01 ET (04:01 GMT)

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