Chip makers are in an arms race and ASML is the arms dealer, hedge fund manager says

By Louis Goss

"There's an arms race going on between TSMC, Intel, and Samsung, and ASML is the arms dealer" Vijay Shilpiekandula, managing director at Dilation Capital

The world's top chip makers are currently engaged in an "arms race" and ASML, which makes the machines used to manufacture microchips, is the company best placed to profit, a hedge fund director has said in a pitch that saw him win a top investments idea contest last week.

In his pitch that won the Sohn London Investment Idea Contest last week, Vijay Shilpiekandula, said ASML (NL:ASML) (ASML) is in a prime position to capitalize on competition between TSMC, Intel, and Samsung as it provides the machines they all need to make their most in-demand products.

He explained that while top chip makers are fighting amongst themselves to profit from the "gold rush" surrounding the growth of artificial intelligence software, ASML is in a position to profit by selling the tools those companies require.

Dutch company ASML is currently the only company in the world that makes the multimillion-euro extreme ultraviolet (EUV) machines that are required to make the semiconductors needed to make the chips used in the most cutting-edge AI technologies.

"Whether it is Nvidia GPUs, ChatGPT or smartphones, none of them would be possible without ASML," Shilpiekandula said in a video recording of his winning pitch that was uploaded on Wednesday.

Shilpiekandula noted that ASML is also an "R&D powerhouse" that employs thousands of PhDs, invests heavily in research, and owns tens-of-thousands of patents, as he argued the Dutch firm's long-term investments have let it become the leading lithography system maker.

The hedge fund director said service revenues, which currently account for around 20% of ASML's sales, should also compound going forwards, as more companies purchase its high-tech lithography systems. ASML generated EUR27.6 billion in revenue in 2023, up 30% year-on-year.

-Louis Goss

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04-10-24 0630ET

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