Everyone is talking about AI chips. Why they’re scarce. Why China is scrambling to get them. And why Nvidia is minting money with net margins above 50%.

The answer to all of these questions comes down to one bottleneck in the supply chain:

EUV lithography machines.

To build AI chips at 2, 3, 4, or 5 nm process nodes, you need EUV lithography. And only one company in the world can make them: ASML (Netherlands).

ASML has a 100% market share in EUV. They’re not allowed to sell to China, thanks to export restrictions. Without EUV, you can’t build cutting-edge GPUs or AI accelerators.

TThis creates a chain of dependency:
ASML → TSMC → Nvidia

Why China Still Buys Nvidia Chips

China has SMEE (Shanghai Micro Electronics Equipment) working on their own lithography machines. They’ve filed patents. But patents are not production. Real, commercial EUV capability is years away.

TUntil then, China has no choice but to rely on Nvidia chips that are built at TSMC using ASML machines.

TThat’s why, despite all the noise, Chinese AI firms still line up for Nvidia GPUs.

Inflated Margins Everywhere

Because of this monopoly, margins are inflated at every level:
Nvidia keeps >55% net margins (Not a typo you read it right) TSMC, Nvidia’s supplier and producer of AI chips, also enjoys >40% net margins (Not a typo you read it right)

Think about that: If a chip sells for $100, half is margin for Nvidia, and another half is for TSMC. That’s not pricing efficiency — that’s monopoly economics.

The Question: How Long Can It Last?

These margins don’t hold forever. They last only as long as China cannot build EUV machines and as long as competition at advanced nodes is limited.
But that’s changing.

• Intel (18A process, ≈1.8 nm, 2025–26).
• Rapidus (Japan) (2 nm pilot production, 2025–26).
• Samsung (pushing 3 nm → 2 nm by 2026).
• SMIC (China) (lagging at 7 nm, but catching up with multi-patterned DUV).

Every one of these fabs still depends on ASML today. But once China manages to commercialize its own EUV lithography, the monopoly breaks.

The Coming Price Collapse

History gives us a clue. Remember solar panels? Once China scaled manufacturing, prices dropped 70–80% within a decade.

AI chips will face the same fate:

• Today: inflated margins at Nvidia and TSMC.
• Tomorrow: competition from Intel, Samsung, Rapidus, SMIC + Chinese EUV breakthroughs.
• Result: AI chip prices dropping 50%, then 70%.

The market is not pricing this in yet. Everyone’s chasing Nvidia’s current margins without factoring in the coming supply flood.

Bottom Line

The AI chip supply chain today is a bottleneck. But bottlenecks never last forever.

Right now, ASML → TSMC → Nvidia defines the industry. Soon, a wider cast — Intel, Samsung, Rapidus, SMIC, plus SMEE — will break the monopoly.

When that happens, the AI chip market will look less like luxury silicon, and more like commoditized solar panels.

Margins will collapse. Prices will crash. And investors who think today’s economics are permanent will be in for a shock.

Post Script: We are well aware of Nvidia's CUDA ecosytem, AI Chip design capabilities, HBM and advanced packaging capacity