ASML’s Blowout Quarter Is a Geopolitical Signal
| AUTHOR | Pranay Kotasthane |
| DATE | July 17, 2026 |
| CATEGORIES | Semiconductors High Tech Geopolitics |
ASML reported its second-quarter 2026 results on July 15. Net sales came in at €9.3 billion, well above the consensus estimate of €8.8 billion. Net income was €2.9 billion. Most significantly, the company raised its full-year 2026 guidance to €43-45 billion in revenue, a sharp jump from the €36-40 billion range it had guided just a quarter ago. CEO Christophe Fouquet described order intake as “extremely strong” and announced plans to expand capacity for both EUV and DUV tools by 30 per cent in each of the next two years.
These are impressive numbers. But ASML is also a weathervane for the AI infrastructure story as it is the sole manufacturer of extreme ultraviolet lithography systems and holds a monopoly on the advanced lithography equipment that every GPU used for training requires. Broadly speaking, its order book is thus like a real-time dashboard of two forces: the global AI infrastructure buildout and the US-China semiconductor contest.
At its previous Investor Day talks, the company projected that 5 to 10 per cent of global fab capacity by 2030 will exist because of geopolitics rather than market demand. That is capacity being built not because the market needs the chips, but because governments have decided that strategic resilience requires domestic production. Every one of those geopolitically motivated fabs still needs ASML’s machines. Fragmentation, paradoxically, is good for ASML’s top line, at least until the AI bubble lasts or until the next inevitable trough of the semiconductor business cycle arrives.
The China story first. China’s share of ASML’s system sales fell from 36 per cent in Q4 2025 to 19 per cent in Q1 2026. The Q2 earnings call confirmed that China-related business remains at approximately 20 per cent of total net sales for 2026, though that percentage now applies to a significantly higher revenue base than previously expected. Thus, ASML expects to continue selling the N-1 generation DUV machines to China.
Next, these earnings also indicate China’s progress in alternatives to ASML’s much-in-demand machines. It seems that at the EUV level, China is still far behind. The technology required decades of ecosystem development and cross-border collaboration that cannot be easily replicated under sanctions conditions.
At the DUV level, however, the picture is more nuanced. SMEE, the Shanghai-based equipment maker, has delivered early 28nm ArF immersion DUV systems, reportedly designed to avoid any US-origin intellectual property. But it hasn’t been productised yet. SiCarrier, a Huawei-linked entrant, is testing a domestically manufactured immersion DUV tool at SMIC. These are prototype-stage tools, roughly where ASML was in the early 2010s. Even ASML’s EUV took thirteen years to go from a working prototype to a consumer product.
Thus China’s substitution efforts are not production-ready, and they are not close to matching ASML on throughput, yield, or overlay accuracy. But the direction of travel is clear. For ASML’s long-term earnings trajectory, the key determinant is whether Chinese firms have found substitutes or alternatives.
The next escalation that could impact ASML is not far away. The MATCH Act, currently making its way through the US Congress, would ban not just new DUV lithography sales to China but also the servicing of existing equipment. The servicing piece matters more than the equipment ban. Chipmaking tools degrade rapidly without constant maintenance. If servicing stops, China’s entire installed base of ASML DUV systems becomes a depreciating asset, regardless of whether Chinese firms can eventually build indigenous alternatives.
This brings us to the Netherlands’ position. ASML accounts for roughly a quarter of the total market capitalisation of the Euronext Amsterdam exchange. Together with Shell, these two companies make up nearly 46 per cent of the exchange. The Dutch government has committed €2.5 billion in public infrastructure through its Beethoven project to keep ASML anchored in Veldhoven.
Asking the Netherlands to aggressively restrict ASML’s China business is comparable to asking Saudi Arabia to leave oil in the ground. The Dutch trade minister has explicitly said that the Netherlands opposes the extraterritoriality of the MATCH Act. And yet, the historical pattern is clear that the Netherlands blocked EUV exports from 2019, restricted DUV exports from January 2024, and will likely comply again when forced. The operative word is “forced” meaning that ASML will follow the letter of US restrictions while creating maximum room to protect its remaining business.