Shares of semiconductor equipment companies ASML Holdings (NASDAQ: ASML), KLA (NASDAQ: KLAC), and Lam Research (NASDAQ: LRCX) experienced significant declines on Monday, with drops of 6.8%, 4.7%, and 6.7% respectively by 3:52 p.m. ET. While semiconductor stocks typically show long-term growth potential, they are also affected by cyclical trends. Today, concerns about a potential recession caused by tariffs have led to a major sell-off.
Investors are wondering where to allocate $1,000 at this time. Our analyst team has identified the top 10 stocks to consider purchasing. In addition, the escalating trade tensions with China pose challenges for semiconductor stocks, as China is a major consumer of chips and is actively investing in its own chip manufacturing capabilities.
Recent reports suggest that China is developing an alternative to extreme ultraviolet (EUV) technology, a market currently dominated by ASML. This news may have impacted ASML negatively, given its stronghold on EUV and lithography technology.
The uncertainty surrounding a possible recession and the trade tensions with China have weighed heavily on economically sensitive stocks, particularly tech companies and semiconductor manufacturers. Restrictions on selling equipment to China or limitations on advanced AI and memory chips could prompt China to seek alternatives from sources other than the U.S.
China’s advancements in domestic chipmaking tools have increased, with reports indicating a shift towards self-reliance in semiconductor production. While some semiconductor categories still heavily rely on U.S.-designed chips, China is exploring alternatives from Europe and South Korea, aiming to reduce dependence on American technology.
The semiconductor equipment market remains a key challenge for China due to its technological complexity, currently dominated by companies like ASML, KLA, and Lam Research. Despite efforts to improve domestic chipmaking tools, China is yet to make significant progress in this sector. Reports suggest that China is gearing up to introduce its own version of ASML’s EUV technology later this year, signaling its commitment to reduce reliance on foreign semiconductor equipment.
Researchers in China have developed laser-induced discharge plasma (LDP) technology as an alternative for generating 13.5nm light, which is the wavelength required for ASML’s low-NA EUV machines critical in producing cutting-edge semiconductors below 7nm. A recent report by TechPowerUp suggests that China’s LDP technology is advancing towards trial production, potentially signaling their progress in manufacturing advanced chips domestically.
Looking back to 2018, semiconductor stocks experienced significant drops amidst trade war and macroeconomic concerns, presenting a favorable long-term buying opportunity for investors in semiconductor and equipment stocks. While China’s LDP technology shows promise, it remains uncertain if it can match the capabilities of EUV, particularly in a production environment. ASML’s EUV technology underwent nearly two decades of development before achieving commercial chip production. Hence, investors may remain cautious about China’s LDP technology becoming a competitive lithography solution in the near future.
Despite semiconductor stocks being more expensive than in 2018, the rise of cloud computing, remote work, and AI innovations are expected to drive growth in the sector. Market downturns in semiconductor industry leaders often present buying opportunities, potentially resembling previous favorable investment moments. For those considering ASML stock, it’s advisable to explore other top-performing stocks identified by The Motley Fool Stock Advisor team, which has a strong track record of success and providing investment guidance.
Disclosure: Billy Duberstein and/or his clients hold positions in ASML, KLA, and Lam Research. The Motley Fool also discloses its ownership of ASML and Lam Research and upholds a disclosure policy.
