Step inside a semiconductor chip factory and you would see science fiction come to life. Giant 200-ton lithography machines fire lasers 50,000 times a second, turning droplets of molten tin into bursts of light hotter than the surface of the Sun.
From those fleeting explosions comes a form of ultraviolet light found nowhere else on Earth. Virtually flawless mirrors bend this ethereal light, measured in single digit nanometres (billionth of a metre) through a precise blueprint, laying out transistor patterns onto silicon wafers, each line 6,000 times thinner than a human hair. This process is the heartbeat of modern chipmaking.
The architect of this spectacle is ASML, a Dutch powerhouse that few outside the industry have ever heard of. Yet every AI query, phone swipe, and video stream traces back to its machines. ASML holds a monopoly in extreme ultraviolet (EUV) lithography – the technology at the heart of modern chipmaking – and controls over 90% market share in older-generation lithography systems as well. Without ASML, the digital world we take for granted would grind to a halt, with economic progress hitting a wall of physics.
After three gruelling decades of R&D, tens of billions of euros and the development of a supply chain of some 5,000 niche partners, the introduction of EUV lithography in 2019 marked a pivotal leap in the manufacture of the world’s most advanced chips. Despite an eyewatering price tag of €200m a pop, semiconductor-foundry customers queued to buy EUV machines, which, today, are the backbone of global chip production.
Indeed, after decades of relentless innovation, ASML’s lithography machines have advanced so far that a single silicon wafer today packs more processing power than all the computers built in the 1990s combined.
ASML’s financial results are as striking as its mastery of physics. The continuing rise of EUV technology should see multi-year, double-digit growth as the global semiconductor market barrels toward the $1-trillion mark by 2030. Gross margins of 52% keep marching upward, while economies of scale push operating margins (now about 35%) even higher. ASML’s peerless technology has endowed it with a rarefied and structurally rising return on invested capital, presently exceeding 40%. Moreover, the company prints cash, converting roughly ninety cents of every euro earned into free cash flow. Shareholders reap the benefits through a progressive stream of dividends and well-timed share repurchases.
These characteristics align with Mazi Asset Management's investment philosophy: strong and rising returns on invested capital, ample room for compounding growth, disciplined and shareholder-friendly capital allocation, and steadily expanding margins. Perhaps most importantly, ASML’s web of interlocking advantages, built patiently over decades, has created a moat deep enough to protect its dominance for decades to come.
So, where to from here? ASML continues to push the boundaries of impossible light. Its next-generation EUV system, a €350m leviathan capable of fabricating circuits at near atomic-precision, will usher in the next era of semiconductor technology. Expected to go mainstream by the end of the decade, it reaffirms ASML’s place at the very centre of the digital world’s progress.
ASML’s double-digit earnings growth looks set to continue unperturbed. And despite its dominant long-term position, the company’s share price has been shaken by concerns over global growth, trade wars, and shifting geopolitics. For patient investors, that volatility offers an opportunity to acquire a world-class business at an attractive valuation, and compound alongside the business over time.
ASML has become the tollbooth on the road to the future: every bit of data we create must, at some point, pass through its gate. As the world grows ever more digital, the demand for smaller, faster, more efficient circuits only intensifies. And that requires more flashes of impossible light inside ASML's magnificent machines.
