Why ASML and Applied Materials Surged While Nvidia Stalled

0:00Lucas: So here's a stat that jumped out at me this morning. Over the past five trading days, Nvidia is basically flat — down a tenth of a percent. Applied Materials is up twenty-two percent. ASML is up nearly sixteen percent. And the broader semiconductor index, the SOXX, is up almost nine percent. Luna: That is a pretty striking divergence. Nvidia is still the poster child for AI compute, but the market is suddenly much more excited about the companies that build the machines that build the chips. Lucas: Exactly. And I think that tells us something about where we are in the AI investment cycle. For the last eighteen months, the whole narrative was about GPU scarcity — can Nvidia ship enough H100s, then B200s, to meet demand. But that story is maturing. Luna: Right, because you need more than just design wins. You need actual fabrication capacity. And that means the equipment makers become the bottleneck. Lucas: Exactly. Let's talk about ASML first, because their position is almost absurdly dominant. They are the only company in the world that makes extreme ultraviolet lithography machines — the EUV systems needed to print the most advanced chips. Each EUV machine costs around two hundred million dollars and can weigh as much as a commercial jet. Luna: And they're effectively impossible to replicate. The R&D and supply chain complexity is staggering. ASML has spent decades and billions perfecting that process. Lucas: Right. So when TSMC and Samsung and Intel all need to build out capacity for three-nanometer and two-nanometer production, they all come to ASML. And ASML has been raising its guidance. They said they expect to ship more than sixty EUV systems this year. Each one, again, around two hundred million dollars. That's twelve billion in revenue from one product line alone. Luna: And the market is finally pricing that in. ASML stock had been lagging for a while — people worried about export controls, about China exposure. But the installed base is so valuable, and the service contracts are recurring. Lucas: Now compare that to Applied Materials. They're a different kind of equipment maker — they do deposition, etch, chemical mechanical polishing. They're not a monopoly in the same way ASML is, but they have a very strong position in materials engineering. And their stock popped twenty-two percent in a week. Luna: What drove that? Was it an earnings beat, or just sector rotation? Lucas: A bit of both. They gave a strong outlook at a recent investor day, talking about how the AI buildout is driving demand for advanced packaging and new materials. Every new generation of chips requires more layers, more precision, more equipment. Applied Materials calls it the 'materials inflection' — and they're positioning themselves as the key enabler. Luna: So the thesis is: Nvidia and AMD and the other chip designers are great, but their growth depends on having enough manufacturing capacity. And that capacity requires massive capital expenditure from TSMC and the foundries, which flows directly to equipment makers. Lucas: That's exactly it. And there's a timing element here too. The chip designers' revenue growth is starting to decelerate — not decline, but the year-over-year comparisons get harder. Meanwhile, the equipment makers are still in the early innings of a multi-year capex cycle. Luna: I saw a note from a sell-side analyst saying they expect semiconductor equipment spending to grow twenty-five percent this year and another twenty percent next year. Those are strong numbers. Lucas: And it's not just logic chips. Memory is a huge driver too. Micron is up fifteen percent in the past five days. They're benefiting from high-bandwidth memory demand for AI accelerators. And HBM requires even more advanced packaging equipment. Luna: So the equipment theme is broad-based. It's not just one company or one product. Lucas: Now, I want to be clear — I'm not saying Nvidia is a bad business. It's an incredible business with massive margins. But the stock has run so far that a lot of the good news is priced in. The equipment makers, in contrast, have more room for upside surprises. Luna: And let's not forget the geopolitical angle. The US is pushing to onshore semiconductor manufacturing. The CHIPS Act has already funded several fabs, but those fabs need equipment. ASML and Applied Materials are direct beneficiaries. Lucas: That's a great point. And it's not just US — Japan, Europe, even India are all subsidizing chip fabrication. Every new fab is a multi-billion dollar equipment order. Luna: So if I'm an investor looking at this space, what should I watch next? What are the key indicators? Lucas: I'd watch the equipment makers' order books and backlog. ASML reports new orders every quarter. If that number stays elevated, it signals the cycle has legs. Also, listen to what TSMC says about their capex plans. They're the biggest customer for both ASML and Applied Materials. Luna: And on the flip side, what could derail this trade? Lucas: Export controls are the biggest risk. If the US tightens restrictions on selling advanced equipment to China, it could hit revenue. But ASML has been managing that for years now. The other risk is a demand slowdown — if AI investment peaks, the capex cycle could turn faster than expected. Luna: Right now, though, the momentum is clearly with the equipment makers. It's a rotation within the AI trade, not out of it. Lucas: Exactly. And speaking of staying focused on what matters — you know, we spend a lot of time on this show digging into the numbers and the trends because we think it helps listeners make better sense of what's happening. And we deliberately keep this show free of ads. No sponsors, no interruptions. Luna: Yeah, that's a choice we made from the start. And it only works because some listeners choose to support the show directly. Lucas: If that's something you value, you can find us at buy me a coffee dot com slash fexingo. It's a simple way to chip in. No pressure, no perks, just helping keep the conversation going. Luna: And we really appreciate those who do. It lets us keep doing what we do. Lucas: Anyway, back to the equipment story. One more name I want to mention is Lam Research. They're up about nineteen percent in the past five days. They focus on etch and deposition, which are critical for building the tiny structures in advanced chips. Luna: And they've been gaining market share. I saw they recently won a big contract with a major memory maker. Lucas: Yeah, and that's the thing — the equipment space is not just about the two giants. There's a whole ecosystem, and when the tide rises, many boats float. Luna: So for listeners who want to dig deeper, what should they look at? Lucas: I'd start with the earnings call transcripts for ASML, Applied Materials, Lam, and KLA Corporation. Listen for language about order momentum and capacity utilization. Also, check the SOXX index composition — it gives you a sense of which equipment names are included and how they're weighted. Luna: And don't forget the pure-play AI chip names too. It's not an either-or. The equipment rally doesn't mean Nvidia is doomed. Lucas: Absolutely. It's a broadening of the opportunity set. The AI infrastructure buildout is huge, and it's going to benefit many parts of the supply chain. But right now, the equipment makers are the ones catching the market's attention. Luna: And catching it with some pretty impressive numbers. Lucas: Yeah. ASML up nearly sixteen percent in a week. Applied Materials up twenty-two. That's not noise — that's a signal.