The most important company you've never heard of

Imagine you wanted to bake the world's most intricate cake. Not just any cake – one with billions of layers, each thinner than a human hair, stacked with atomic precision. You'd need a very special oven. In the semiconductor world, ASML makes that oven.

ASML is a Dutch company that builds the machines used to manufacture microchips – the tiny brains inside everything from your smartphone to your car to the servers powering artificial intelligence. Specifically, it makes lithography systems: extraordinarily complex tools that use light to etch microscopic patterns onto silicon wafers, creating the circuits that make chips work. They described it to us as like shining a torch from Earth so accurately that you could hit a 50p coin on the moon.

When we first bought ASML for our Greenbank Multi-Asset Portfolios back in March 2021, the world was still shaking off the pandemic. But we weren't thinking about the next quarter – we were thinking about the next decade. We saw a company sitting at the crossroads of several powerful, long-term trends, with a competitive position that was, frankly, unlike anything else we'd come across.

Why we bought it

Let's start with what makes ASML so unusual: it has a near-monopoly in the most advanced chipmaking technology on the planet. Its extreme ultraviolet (EUV) lithography machines – which cost between $150 million and $250 million each – are the only tools capable of producing the smallest, fastest chips the world demands. No other company makes them. That's not a small competitive advantage; it's a moat the size of the North Sea.

These machines are so complex that they take 250 ASML engineers roughly six months to assemble and calibrate once shipped. The level of engineering expertise and supplier collaboration needed to build them makes replicating ASML's technology incredibly hard. And once a chipmaker like Taiwan Semiconductor Manufacturing Company or Samsung has integrated ASML's equipment into its production line, switching to something else would be enormously costly and disruptive.

But a monopoly alone doesn't make a good investment – you also need profit growth. And here, the tailwinds are formidable. The explosion of AI, cloud computing, and the ever-expanding universe of connected devices all require more chips, and more advanced chips at that. Every time you ask a chatbot a question, stream a film, or use a navigation app, you're relying on technology that was etched by an ASML machine. Both in the device in your hand and for the workhorse chips that fill data centres all around the world.

The global semiconductor market is on track to roughly double since we first invested, with industry forecasts suggesting annual sales could be in the region of $1 trillion in 2026.

ASML doesn't just ride this wave – it amplifies it. As chips become more complex, manufacturers need more lithography steps per chip, which means more of ASML's machines. Its share of total industry equipment spending has been steadily climbing, and ASML is the only company in the world that makes next-generation High-NA EUV tools (costing $300-400 million each). This should cement ASML’s dominance well into the next decade.
 

The sustainability case

For our Greenbank Multi-Asset Portfolios, financial merit is only half the story. Every holding must also deliver tangible sustainability benefits as well. ASML clears that bar convincingly.

At its core, ASML enables the production of more energy-efficient microchips. As the world digitises to tackle challenges from climate change to healthcare, the semiconductors that ASML helps create are foundational to those solutions. From smart grids managing renewable energy to medical devices improving people’s quality of life, ASML is making a measurable improvement to the environment and to people. Added to this, ASML has committed to being carbon-neutral across its entire value chain by 2040, a target validated by the Science-Based Targets initiative, and it holds a top-tier AAA ESG rating from MSCI.

In short, ASML makes the world's technology more powerful and more efficient – exactly the kind of business we want to own in a sustainable portfolio.

The risks we're watching

No investment is without risk, and we think it's important to be upfront about what could go wrong.

First, the semiconductor industry is cyclical. When chipmakers cut their capital spending – as they did in 2022 – ASML's order book takes the brunt. The company's revenues are also concentrated among a handful of enormous customers, particularly TSMC. If any of them hit trouble, ASML would feel it. 

Second, geopolitics loom large. Export controls – especially those restricting sales of advanced technology to China – have already limited ASML's access to what was its largest market. Further tightening could weigh on revenues.

Third, there's execution risk around its next-generation High-NA EUV machines. These are eye-wateringly expensive, and if adoption is slower than expected, the returns on ASML's enormous R&D investment could take longer to materialise.

Finally, ASML assembles around 80% of its machines in the Netherlands. Any disruption to that single hub – whether from supply chain issues or something more unexpected – could meaningfully impact production.

Five years on

Five years on, the investment case for ASML looks stronger, not weaker. The stock has risen more than 450% from where we first bought it. Revenues and profit margins have expanded since we bought in, while free cash flow has surged. This has allowed the company to return €31.4 billion to shareholders through dividends and buybacks over the past five years – all while investing heavily in the technologies that will underpin the next era of computing.

More importantly for us, ASML has stayed true to what we look for in our portfolios: a genuinely world-class business, operating sustainably, and positioned to benefit from long-term trends that will shape the global economy for decades. We bought it because we believed it was one of the most important companies in the world. We still do.