Shares of ASML Holding NV plunged 5.02% in pre-market trading on Tuesday, extending a sharp selloff from the previous session as investors reacted to a significant competitive development from China.

The decline was triggered by reports that Shanghai Aishengna Electronic Technology Group, a Chinese state-backed enterprise, has begun mass production of immersion deep ultraviolet (DUV) lithography machines. This technology is the workhorse of chip manufacturing and a core part of ASML’s business. Although the Chinese-made tools are not yet as advanced as ASML’s leading-edge systems, the breakthrough marks a major step in China’s pursuit of semiconductor self-sufficiency and raises concerns about long-term demand erosion for ASML in one of its key markets.

The initial production scale is modest, with plans for around five units this year and scaling to 20 in 2027, compared to ASML’s delivery of 131 immersion DUV systems last year. However, the news rattled investors, triggering a broader selloff in semiconductor equipment stocks globally. Some analysts viewed the reaction as overdone, noting that the Chinese machines remain far from matching ASML’s technology and that the company’s competitive moat remains intact for now.