(Updated - July 27, 2026 3:36 PM EDT)

Semiconductor capital equipment stocks have taken a brutal U-turn on Monday, swinging from AI-driven euphoria to geopolitical panic in a matter of hours.

Heading into the opening bell, the sector was riding a pre-market high. The optimism was fueled by easing geopolitical tensions in Iran and a blockbuster Wall Street Journal report revealing that Nvidia is in talks to guarantee a massive $250 billion in financing for an OpenAI data center project.

But that momentum evaporated instantly following a breaking report from The Information.

According to the report, a Shanghai-based, state-backed company (incorporating teams from startups like Yuliangsheng Technology) has successfully started mass-producing homegrown immersion DUV (deep ultraviolet) lithography machines. The report indicated the company intends to produce 5 DUV tools this year and 20 next year for domestic customers including SMIC, CXMT, and Hua Hong.

This marks a critical leap in Beijing’s push to build a localized chip supply chain. Furthermore, it arrives just as the U.S. Congress advances the MATCH Act, legislation aimed at blocking China from buying or servicing these exact DUV machines. If China can build them domestically, impending U.S. restrictions may lose their teeth entirely.

The Market Carnage in Late Trading

The market’s initial logic was brutal: if Chinese engineering has conquered the incredibly complex lithography bottleneck, the rest of the U.S. supply chain (deposition, etching, inspection) is highly vulnerable to replacement.

This fear triggered an immediate and synchronized sell-off. At their intraday lows, ASML, Applied Materials (AMAT), Lam Research (LRCX), and KLA Corp (KLAC) were all down roughly 7%, wiping out billions in market value in a matter of minutes.

However, the bleeding has slowed as the market enters the final hour of trading, with the stocks paring back some of those steep losses:

• ASML is currently trading down 5.75%.
• Applied Materials (AMAT) is down 4% heading into the close.
• Lam Research (LRCX) is currently off 4.5%.
• KLA Corp (KLAC) is trading down 3%.

The afternoon recovery is being driven by a wave of Wall Street analysts who quickly stepped in to defend the sector, arguing that the market is conflating a prototype milestone with an imminent commercial threat.

The Analyst Pushback: Why Wall Street is Defending the Dip

Analysts across major firms were quick to pour cold water on the panic, arguing that producing a handful of machines does not immediately dismantle ASML’s global monopoly.

BofA Securities: "An Over-Reaction"

Analyst Didier Scemama called today’s weakness an "attractive opportunity," reiterating a Buy rating and a €2,452 price target. He argued that the threat to ASML is "modest," noting that China’s leading domestic player, SMEE, has yet to demonstrate high-volume production at 28nm or below.

Replacing ASML requires matching its extreme productivity and precision. "ASML’s NXT:1980Fi already delivers 330 wafers per hour," Scemama wrote. In leading-edge Chinese manufacturing, "even modest reductions in scanner performance could materially lower yields and increase cost per die." Scemama calculated that even if China successfully sources 20 domestic tools next year, it would only reduce ASML sales by an estimated €1.4 billion—a mere 2.4% of the company’s projected group sales.

JPMorgan: "Disproportionate" Reaction

Analyst Sandeep Deshpande echoed that the market reaction was overblown. He stressed the massive difference between building a prototype and dominating a fab floor.

"Producing a handful of immersion DUV tools is not the same as producing tools that can be used for high-volume manufacturing," Deshpande noted, emphasizing that "yield, overlay, throughput, and reliability over thousands of wafer runs are what matter." While he acknowledged this raises long-term risks to ASML’s China revenue, he maintained that the company’s mid-term earnings remain entirely intact.

BNP Paribas: A Supply Necessity, Not Just a Threat

Analyst Jakob Bluestone framed the development as only a "small negative" for ASML, pointing out a structural reality: ASML’s global demand currently far outstrips its available supply.

Bluestone highlighted that DRAM capacity growth in China alone is projected to add more than 500,000 wafer starts per month before 2030—a massive scale-up that will require several hundred ArFi tools. Because ASML physically cannot supply the entire Chinese market while meeting demand from the rest of the world, Bluestone argued that local Chinese manufacturing of lithography tools is a "likely necessity" to support this output growth, rather than a total replacement of ASML’s business.