US-based startup Substrate announced on Tuesday that it has developed chip manufacturing equipment capable of competing with the most advanced lithography systems produced by Dutch firm ASML Holding NV.

Substrate CEO James Proud stated in an interview that this equipment marks the first step in the company's ambitious plan to establish a domestic US contract chip manufacturer, aiming to challenge Taiwan Semiconductor Manufacturing Company (TSMC) in cutting-edge AI chip production. Proud aims to significantly reduce chip manufacturing costs by producing required equipment at substantially lower prices than competitors.

Success in this endeavor could have major implications for both economic and national security. Former US President Donald Trump prioritized reshoring chip manufacturing, with the US government recently investing in Intel—a former industry leader struggling to keep pace with TSMC's technological advancements.

Substrate revealed it has secured $100 million in funding from CIA-backed nonprofit In-Q-Tel, venture firms General Catalyst, Allen & Co, Long Journey Ventures, and Valor Equity Partners, valuing the company at over $1 billion.

However, the San Francisco-based company faces immense challenges. Lithography requires extreme precision, posing engineering difficulties even for large corporations. ASML remains the sole global producer of complex extreme ultraviolet (EUV) lithography systems for mass-producing circuit patterns on silicon wafers.

General Catalyst Managing Director Paul Kwan noted, "To some extent, everyone had resigned to the TSMC-ASML duopoly in addressing chip challenges."

Substrate claims its X-ray-based lithography technology achieves resolution comparable to ASML's most advanced systems—which cost over $400 million per unit. The company says it has demonstrated the technology at national labs and its San Francisco facility, though Reuters couldn't independently verify these claims.

Stephen Streiffer, director of Oak Ridge National Laboratory and X-ray beam expert, commented: "This presents an opportunity for America to reclaim this market through domestic capability. It's a nationally significant effort by people who know what they're doing."

SemiAnalysis analyst Jeff Koch suggested that if Substrate succeeds in dramatically lowering costs, it could create ripple effects similar to SpaceX's disruption of space travel through reduced launch expenses.

Yet Substrate's engineers must overcome significant hurdles. Koch added, "They firmly believe lithography is the first problem to solve for autonomous chip manufacturing. Ultimately, this could displace TSMC and ASML."

Developing advanced chipmaking processes to rival TSMC requires billions in investment—a challenge even for giants like Intel and Samsung. Modern chip fabs cost over $15 billion and require specialized personnel.

Proud confirmed Substrate hasn't received direct US government funding but noted officials' sustained interest: "The commercial viability of our approach is crucial. Since this administration began, Secretary Lutnick and others have followed this closely," referring to Commerce Secretary Howard Lutnick.