Semiconductor stocks experienced a significant downturn Tuesday following disappointing guidance from ASML, Europe’s most valuable tech company, which slashed its 2025 sales forecast amid weakening demand for chip-making equipment. The Dutch chip machinery manufacturer saw its stock plunge 16% in its largest single-day drop since 1998, triggering a broader selloff across the semiconductor sector.
Major AI chip companies felt the impact, with Nvidia (NVDA) declining nearly 5%, AMD falling 5.3%, and Broadcom tumbling 3.5% by midday Tuesday. Super Micro Computer (SMCI) initially dropped 3.4% before recovering most losses. The downturn represents a significant setback for the AI chip industry, which had been experiencing renewed investor confidence in recent weeks.
ASML’s revised guidance painted a sobering picture of the semiconductor market’s near-term prospects. The company lowered its total net sales forecast for 2025 to between €30 billion and €35 billion—the lower half of its previously stated range—citing weak demand from chipmakers for its advanced machinery. CEO Christophe Fouquet acknowledged the challenging environment, stating that “the recovery is more gradual than previously expected” and would likely continue throughout 2025, leading to increased customer cautiousness.
The earnings report revealed particularly weak bookings, with ASML’s third quarter orders totaling just €2.6 billion—less than half the average analyst estimate of €5.39 billion according to Bloomberg surveys. Adding to market surprise, the report was released a day earlier than scheduled, catching investors off-guard with both the timing and disappointing results.
Compounding the sector’s challenges, reports emerged that the Biden administration is considering new restrictions on AI chip exports. According to Bloomberg, the US government has been in discussions to cap sales of advanced AI chips from American companies, including Nvidia, to certain countries for national security reasons. The proposed restrictions would primarily target Persian Gulf countries, which have shown increasing interest in AI technology, and would expand upon existing export controls originally designed to limit China’s AI advancement. Current restrictions already regulate chip shipments to over 40 countries across the Middle East, Africa, and Asia to prevent advanced chip technology from reaching China.
The timing is particularly notable as investment in AI stocks had recently rebounded after a summer slowdown, with Nvidia reaching a fresh high on Monday and helping push the S&P 500 to another record close.
Key Quotes
It now appears the recovery is more gradual than previously expected. This is expected to continue in 2025, which is leading to customer cautiousness
ASML CEO Christophe Fouquet made this statement in the company’s earnings release, acknowledging that the semiconductor industry’s recovery from recent slowdowns is taking longer than anticipated. This matters because ASML’s equipment is essential for manufacturing the advanced chips that power AI systems, making the CEO’s cautious outlook a significant indicator for the entire AI chip supply chain.
ASML’s third quarter bookings were €2.6 billion, coming in under half the average estimate of €5.39 billion
This dramatic shortfall in new orders—missing analyst expectations by more than 50%—reveals that chipmakers are significantly reducing their equipment purchases. For the AI industry, this suggests either that existing manufacturing capacity is sufficient for current demand, or that chipmakers are becoming more cautious about future AI chip demand, both of which have important implications for AI infrastructure expansion.
Our Take
This selloff represents a critical reality check for the AI chip sector, which has been trading on expectations of unlimited growth. ASML’s guidance suggests that chipmakers are becoming more selective about capacity expansion, possibly indicating that the initial wave of AI infrastructure buildout is maturing. The timing is particularly significant—coming just as Nvidia hit new highs—suggesting the market may have gotten ahead of itself.
The potential export restrictions add another layer of complexity, potentially fragmenting the global AI chip market along geopolitical lines. While intended to protect national security, these measures could accelerate the development of alternative chip ecosystems and reduce American companies’ market dominance. The combination of demand uncertainty and regulatory pressure creates a challenging environment that could slow AI development or shift investment patterns. Investors should watch whether this represents a temporary pause or a more fundamental shift in AI infrastructure spending patterns.
Why This Matters
This development signals a potential cooling in the AI infrastructure boom that has driven massive gains in semiconductor stocks over the past year. ASML’s machinery is essential for producing the most advanced chips powering AI systems, making its guidance a critical indicator of future AI chip production capacity and demand.
The combination of weakening equipment demand and potential export restrictions creates a challenging environment for AI chip manufacturers at a crucial moment. Companies like Nvidia, AMD, and Broadcom have been racing to meet surging demand for AI accelerators from cloud providers and enterprises building AI capabilities. A slowdown in chip manufacturing capacity expansion could constrain AI development or signal that current production capacity is sufficient for near-term demand.
The proposed export restrictions add regulatory uncertainty to an industry already navigating complex geopolitical tensions. Limiting sales to Persian Gulf countries—which have been investing heavily in AI infrastructure—could significantly impact revenue for American chipmakers while potentially pushing these nations toward alternative suppliers. This matters for the global AI race, as access to advanced chips determines which countries and companies can develop cutting-edge AI systems. The semiconductor sector’s performance often serves as a leading indicator for the broader AI industry’s health and growth trajectory.
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