The most powerful company in tech is a niche Dutch business you've never heard of

In Veldhoven, a town of about 45,000 in the southern Netherlands, sits a company that is enabling the modern artificial-intelligence boom. Without it, there would likely be no ChatGPT, no Claude, and no Gemini. Nvidia likely couldn’t produce the powerful graphics processors that have made it one of the world’s most valuable companies.

That company is ASML. It’s at the heart of the semiconductor industry and an unavoidable part of the chip-designing and manufacturing process: If you want to make the most powerful chips, you have to go through ASML.

The Dutch firm’s expertise is in photolithography, which uses light to imprint a pattern of circuits onto a silicon wafer. It specializes in extreme ultraviolet lithography, or EUV lithography, for the very smallest chips. Effectively, ASML’s machines copy precise chip designs from companies like AMD, Intel, and Nvidia onto teeny tiny slices of silicon.

It’s complicated and expensive work, and to say it’s the only game in town isn’t hyperbole. Without it, AI certainly wouldn’t be having its moment in the sun. 

But because the AI business passes through ASML, so do the geopolitical battles that stem from it. And right now ASML is at the center of blistering tensions between two superpowers. 

When you make a computer chip, you need to place billions of tiny transistors on tiny chips in precisely the correct way. Before you can make them in a fabrication facility, you need to make a mold for the pattern.

Mike Demler, an analyst and consultant, told Sherwood that ASML machines create “the stencil, if you will, of where those transistors go and what their shapes are.” There are lots of other steps and crucial actors in semiconductor fabrication, but to start, you need that stencil. If you can't print the pattern on the chip, there's no point in doing anything else that goes with it, Demler said.

ASML’s newest machines, which weigh as much as two Airbus planes, as Bloomberg put it, can carve designs 8 nanometers in thickness. (For comparison, a sheet of paper is about 100,000 nanometers thick.) ASML’s website says the machines involve 100,000 individual parts and are a logistical feat to deliver: “40 freight containers, three cargo planes and 20 trucks.”

That — plus all the research and development built into the price tag — makes using ASML wildly expensive for chipmakers. ASML’s top model, which does high-numerical-aperture EUV lithography, shipped for the first time last December to an Intel facility in Hillsboro, Oregon. The price? $380 million. It’s an amount that has made even some of ASML’s most devoted customers shake their heads. “I like the high-NA EUV’s capability, but I don’t like the sticker price,” an exec at Taiwan Semiconductor Manufacturing Company, the largest chip fabricator, told Bloomberg.

But if you want to be in the business of making top-of-the-line chips, it’s hard to avoid ASML. “When it comes to EUV lithography machines, ASML has no competitors,” Hanna Dohmen, an analyst at Georgetown University, told Sherwood. “ASML is the only company in the world that can make these incredibly complex tools.”

The only thing more expensive than buying ASML’s technology might be the fool’s errand of trying to re-create it. “The good news is the cost of building one of those chips using one of those machines is even higher,” Demler said, laughing. “That’s why only a few companies can justify working at the bleeding edge.”

Like many global semiconductor companies, ASML is stuck in a face-off between the two economic and technological superpowers: the US and China.

To curb China’s ambitions to develop more powerful AI technology, which the US fears could be used to supercharge its military capabilities, the Biden administration has imposed strict export controls over the sale of both powerful chips and the manufacturing equipment needed to produce them.

Even though ASML is a Dutch company, it’s still subject to US export controls for the simple reason that some of its 100,000 parts are made in America. ASML can still sell its midrange machines, called deep ultraviolet (DUV), to China, but clampdowns by US and Dutch authorities should reduce sales of DUV products by 10 to 15% this year, the company said in January. ASML has never shipped an EUV tool to China, and it's been restricted from doing so since 2019. Yet, in 2023, China represented 29% of ASML’s net sales, second after Taiwan.

The Biden admin is also considering strengthening its chokehold on ASML, potentially invoking a measure called the foreign direct product rule, which places more direct controls on foreign products with US parts, if global allies, like the Dutch government with ASML or the Japanese government with manufacturer Tokyo Electron, don’t further cut off sales to China. That escalation would potentially cut into semiconductor companies’ profits as they — like most chip companies — try to squeeze whatever dollars they can out of the insatiable Chinese demand for their products. (Bloomberg recently reported that the Netherlands and Japan are expected to be exempted from the rule — at least for the time being.)

“China is a very important market for all [semiconductor manufacturing equipment] makers, and all companies — from the Netherlands, the US, and Japan — are caught in the middle as the US works with its allies to cut China off from the sophisticated machines that can enable it to keep up with many of the most important recent advances in chipmaking,” said Jeremy Mark, a nonresident senior fellow at the Atlantic Council, an international-affairs think tank. 

“Whatever they may say publicly, all of these companies are feeling the pinch as the US tightens controls on SME sales to China.”

Chinese President Xi Jinping reportedly told Dutch Prime Minister Mark Rutte in March, in so many words, that his country doesn’t need ASML. “The Chinese people also have the right to legitimate development, and no force can stop the pace of China’s scientific and technological development and progress,” Xi said, according to the Chinese state broadcaster CCTV.

Xi is probably bluffing.

“China has long sought to indigenize its semiconductor industry, and US and allied export controls on chips and semiconductor manufacturing equipment are undoubtedly further incentivizing Chinese companies to develop domestic tools and manufacturing processes,” Dohmen said. 

“While they appear to be making progress in certain parts of the supply chain, manufacturing EUV-lithography equipment will be the hardest hurdle to overcome.”

Last year, Chinese tech conglomerate Huawei and its chipmaking partner, Semiconductor Manufacturing International Corp., made a breakthrough by manufacturing a chip using the advanced 7-nanometer process, which is generations behind top chips but still too advanced for the US to be comfortable.

Bloomberg reported that the Huawei chips were made using parts from the US, as well as from ASML, which previously disclosed that an employee had stolen equipment to give to Huawei. Still, US Commerce Secretary Gina Raimondo said she didn’t see any evidence that China could produce these chips “at scale.”

ASML’s work isn’t just important because it’s an unavoidable part of the global chip trade, or because no one else really does what it does. It’s also lodged between the US and China at a time when everyone wants what ASML has, and few can afford access to its giant, hundred-million-dollar machines.