Whalesbook
India's Chip Ambitions Expand
ASML, a key supplier of lithography systems needed for advanced chip manufacturing, is increasing its engagement with India's growing semiconductor sector. The Dutch company is actively seeking collaborations with Indian firms, aligning with New Delhi's ambitious semiconductor mission. This comes as India, under the expanded India Semiconductor Mission 2.0 (ISM 2.0), is shifting its focus to build a comprehensive ecosystem, not just chip fabrication. The government has allocated ₹1,000 crore for ISM 2.0 in FY 2026-27, showing its commitment to developing domestic capabilities across the full semiconductor value chain: design, materials, equipment, and chemicals. This approach aims to reduce India's import reliance and boost self-sufficiency in this vital technology sector.
ASML's Crucial Role in Chipmaking
ASML plays a vital role in the global semiconductor industry. The company dominates the market for extreme ultraviolet (EUV) lithography machines. This technology is essential for producing the most advanced chips, at 5 nanometers and below. ASML holds about 90% of the overall lithography market and is the only supplier of EUV systems. These are vital for major chipmakers like TSMC, Intel, and Samsung. These complex machines, built from over 100,000 parts through a decade of development, create a high barrier to entry. ASML's strong position is reinforced by exclusive partnerships, like its long-term collaboration with Carl Zeiss SMT GmbH for precision optics, showing the complex supply chains involved. In 2025, ASML reported net sales of €32.6 billion and has a large order backlog due to ongoing demand for advanced chips.
Global Push for Chip Supply Chain Diversity
Geopolitical tensions are increasingly shaping the global semiconductor industry, especially concerning Taiwan's central role in advanced chip production. Concentrated production in Taiwan creates risks from conflict or trade disputes, driving a global push for supply chain diversification. Countries like the U.S., Europe, and Japan are investing heavily in domestic capabilities via initiatives such as the U.S. CHIPS Act. India's semiconductor mission follows this global trend, positioning itself as a potential manufacturing hub by using its growing tech ecosystem and skilled workforce.
Focus on AI Servers and Local Production
Alongside its broader semiconductor goals, India is prioritizing domestic AI server manufacturing. The recent launch of 'Make in India' AI server lines by companies like Altos Computing (an Acer subsidiary) highlights this focus. The government sees localized hardware as fundamental to its digital economy strategy. However, AI servers are expensive, with GPUs making up 70-92% of their cost. This challenges India's incentive schemes and raises questions about domestic value creation when key components are imported. Efforts by companies like Super Micro Computer to explore local server manufacturing in India show this growing demand.
Challenges for India's Chip Goals
Despite ISM 2.0's expansion and ASML's interest, India's semiconductor goals face significant challenges. India's heavy reliance on ASML for critical EUV technology presents a potential single point of failure for its advanced chip manufacturing plans. India also faces domestic hurdles: a lack of mature fabrication plants, gaps in critical infrastructure (like reliable power and ultra-pure water), and a shortage of specialized microelectronics talent. Building fabs requires immense capital expenditure, often needing substantial government support, and concerns exist about policy stability. Adding to these issues, ASML's valuation, often with a Price-to-Earnings ratio above 47, indicates high investor expectations vulnerable to market shifts or slower growth. ASML's stock has performed strongly due to AI demand, but its premium valuation suggests caution. ASML also faces export controls limiting sales to China, its second-largest market, which could affect its overall growth.
What's Next for ASML and India
Analysts remain positive on ASML, citing its key role in the AI revolution and strong orders, with price targets suggesting further upside. For India, the success of ISM 2.0 depends on bridging technological gaps, building a strong domestic supply chain for materials and equipment, and developing a skilled workforce. The Indian semiconductor market is projected to reach $100-$110 billion by 2030, offering significant long-term opportunity if India navigates these challenges and uses international partnerships.