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ASML Holding NV, a Dutch semiconductor company, witnessed a decline in its shares as the possibility of stricter US restrictions on its operations in China overshadowed its growth in order intake during the last quarter. Reports from Bloomberg News indicate that the Biden administration is considering implementing severe trade restrictions if companies, including ASML, continue to provide China with access to advanced semiconductor technology.

As the US intensifies pressure to curb Chinese advancements in the semiconductor industry, ASML, which holds a monopoly in manufacturing machines for producing cutting-edge semiconductors, finds itself targeted. While ASML reported a promising increase of 54% in bookings for the second quarter compared to the previous three months, amounting to €5.57 billion ($6.1 billion), surpassing estimates, the company's shares still experienced a decline.

Citi analyst Andrew Gardiner noted that the geopolitical aspect was likely to draw more attention than the quarterly results. Bloomberg's report suggests that the US is pressing for additional restrictions on ASML, indicating that pressure is rising to limit service activity on the company's installed base. ASML's shares dropped by as much as 7.7% to €903 in Amsterdam, marking the most significant decline since October 2022.

Despite the stock decline, ASML revealed its sales projections for the current quarter, which are estimated to range between €6.7 billion and €7.3 billion, falling short of expectations of €7.5 billion. The company confirmed its previous guidance of flat sales for this year, with a predicted return to strong growth by 2025.

Earlier chip measures led by the US that targeted ASML's exports to China did not diminish demand from the Asian nation. In fact, China accounted for nearly half of ASML's revenue in the second quarter, with sales in the country experiencing a 21% increase compared to the previous period. Beijing has been actively purchasing unrestricted older equipment to produce more mature types of semiconductors.

ASML's growth is primarily driven by the demand for high-powered chips necessary for applications in artificial intelligence (AI). CEO Christophe Fouquet acknowledged the strong developments in AI, which are spearheading the industry's recovery and growth, surpassing other market segments.

The company's equipment saw continued demand with the impressive performance of some of ASML's major customers. Taiwan Semiconductor Manufacturing Co. recently announced the fastest second-quarter sales growth since 2022, thanks to the AI boom driving data center investments globally. This contributed to a rise of €290 million in sales to Taiwan, as the demand for advanced equipment also incrementally increased.

This last quarter marked the first under the leadership of ASML's CEO Christophe Fouquet, who took over from Peter Wennink in April. Fouquet has been faced with the challenge of balancing the US push for stricter export controls on China with the need to maintain sales in ASML's largest market.

In an effort to slow down China's progress in semiconductor manufacturing, the Netherlands initiated a ban on the export of ASML's second-most advanced lithography machines, immersion DUV lithography machines, to China earlier this year. However, ASML continues to service machines that were procured prior to the restrictions' implementation.

According to the Bloomberg report, the Biden administration has informed its allies that it is considering utilizing the foreign direct product rule, which permits the US to impose controls on foreign-made products leveraging even the smallest amounts of American technology, if such practices persist. ASML anticipates that the export control rules, which were imposed in January, will affect up to 15% of its sales to China this year. Notably, ASML has never been authorized to sell its most advanced extreme ultraviolet technology to China.