One underappreciated aspect of the artificial intelligence revolution is its ability to make household names of previously obscure companies and the people running those companies.
The rising star that is chipmaker Nvidia Corp, a former gaming company turned pillar of the AI boom, takes the cake in this respect.
Leather-clad Nvidia boss and founder Jensen Huang, meanwhile, has achieved his long-due status as a Jobs-style cult figure.
There’s also the matter of normcore OpenAI figurehead Sam Altman, who for all intents and purposes kickstarted the AI boom with the launch of groundbreaking large-language model ChatGPT.
The technological underpinnings of the AI boom may be unique, but in some ways it perfectly echoes the grand Silicon Valley tradition of turning nerds and outsiders into business icons.
Sitting quietly out of the spotlight 5,000 miles away in the Netherlands, ASML Holding NV (NASDAQ:AS:ASML) is enjoying its own AI boom in understated Dutch fashion.
Unlike its tech contemporaries, ASML is hardly a household name, nor will it likely ever be.
Perhaps that is down to ‘extreme ultraviolet (EUV) lithographic machinery manufacturer’ not quite rolling off the tongue.
Perhaps it’s also down to a name that is too close to a flirtatious MSN Messenger prompt (Millennials will understand).
Decade-long chief executive Peter Wennink (whose name this reporter was unable to instantly recall) is also not at risk of becoming the third Dutch person to ever achieve celebrity status.
But while all this may be true, ASML’s importance in the AI supply chain cannot be understated, yet this is exactly what the markets appear to be doing.
A printer as heavy as two Airbusses
Without getting too bogged down in technical nonsense, ASML has a killer app that no other company on the planet has, the aforementioned EUV lithography machines.
Essentially an incomprehensibly complex printer, these machines etch infinitesimally small electric circuits on silicon wafer chips and voila, a semiconductor is born.
Canon and Nikon once had a pop at creating something similar; overwhelmed by the cost and complexity of the task, they gave up some time in the 2000s.
At the top-end of the scale, EUV lithography machines are around the size of a small house and tend to be on the pricey side, to take a page out of the understated Dutch book.
ASML's High-NA Twinscan, the powerhouse behind AI chipmaking, sells for three hundred and eighty million American dollars.
According to Taipei Times, it weighs roughly the same as two Airbus A320s and takes 250 engineers up to six months to install.
An ASML High-NA EUV machine – Photo credit: Taipei Times
That has not stopped semiconductor manufacturing triopoly Intel (NASDAQ:INTC), TSMC and Samsung (KS:005930) placing their orders though.
For anyone else on a tighter budget, ASML offers a lower-end EUV machine for just US$170 million.
It effectively makes ASML the true pick-and-shovel play in the AI sector, with each shovel going for hundreds of millions of dollars.
A new-age gold rush
For the uninitiated, the term ‘pick-and-shovel play’ originates from the gold rush era to describe companies that provide essential tools, services, or infrastructure to an industry, rather than those directly engaged in the primary activity.
Gold miners may have mixed fortunes, but the person selling the shovels kept selling shovels regardless.
Similarly, ASML sold 89 new lithography systems to its customer base in the second quarter of its financial year, up from 66 in the second quarter of 2023.
Will all of these customers hit gold? Maybe not, but ASML will keep selling its product regardless.
Yet despite this investment thesis sounding great on paper, ASML has underperformed against its AI peers.
If we take November 2022 as the genesis of the AI boom (being the launch month of ChatGPT), ASML shares are up 50%.
Decent, but when compared to Nvidia’s 631% rise, OpenAI’s tripling in valuation in the 10 to February 2024 months alone, TSMC’s 100% share price gain and the substantial gains made among the rest of the Magnificent Seven set, there seems to be a mismatch.
To some, including Citi analysts, ASML’s €340 billion valuation is an injustice, particularly given yesterday’s material overreaction to the prospect of tighter China tech sanctions.
Whether you agree or not is up to you, but at very least, ASML’s gumption to sell shovels with a nine-figure price tags should garner a degree of admiration.
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