TSMC and Samsung just committed to buying ASML's High NA EUV lithography tools. These are the newest machines that etch circuits onto silicon wafers using extreme ultraviolet light. The tools cost roughly $380 million each. They're needed because AI chips require smaller transistors and nobody has figured out how to make transistors smaller without more expensive Dutch equipment.
High NA stands for high numerical aperture. Numerical aperture measures how much light a lens can gather. Higher numerical aperture means better resolution. Better resolution means smaller features. Smaller features mean more transistors per chip. More transistors per chip mean you can sell the same sand for more money.
ASML is the only company on earth that makes these machines. They hold a monopoly on EUV lithography because the technology requires about 100,000 parts and a supply chain spanning three continents. TSMC and Samsung have no choice but to buy from ASML if they want to manufacture chips below 2 nanometers. This is what the financial press calls a "commitment" instead of what it actually is, which is being the only two customers for the only product that does the thing you need done.
Retail traders will read this headline and buy semiconductor ETFs because the word AI appeared in the summary. They will not know what EUV stands for. They will not know what numerical aperture means. They will not care that TSMC and Samsung were always going to buy these tools regardless of whether a press release went out today. They will simply see the letters A and I next to each other and experience a Pavlovian response that ends with them market-buying SOXX at 3:59pm on a Friday.
The machines ship in 2025. The chips made with them ship in 2027. Your portfolio dies in 2024 when you panic-sell during the next 8% drawdown.
Photo by Jonathan Kemper on Unsplash
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