One of the chip industry giants just posted financial results that helped assuage the fears of many when it comes to AI investing. That company is ASML (NASDAQ:ASML), a Dutch equipment manufacturer vital to the semiconductor industry. Shares of ASML dropped nearly 6% on Jan. 27 after news surrounding the Chinese company DeepSeek became widely publicized. A report that the firm built an open-source AI model, rivaling ChatGPT, for just $6 million sent many chip stocks plummeting. By the Jan. 29 close, ASML had recovered around half of that loss.

ASML has achieved over $275 billion in market capitalization through its stranglehold on advanced lithography equipment. This equipment is essential to chip makers like Taiwan Semiconductor Manufacturing (NYSE:TSM). It enables them to produce the world's most advanced chips. When it comes to the most advanced lithography equipment, ASML has a near monopoly. As such, demand for ASML's extreme ultraviolet (EUV) lithography machines is a leading indicator of demand for AI chips.

ASML delivered both strong backward-looking and forward-looking results. In the fourth quarter, the company beat estimates on both sales and adjusted earnings per share (EPS) by nearly 3%. For the full 2024 year, sales notched up slightly from 2023. However, among the most important revelations from the report came in the company’s net bookings. Net bookings represent orders the company has received, an indicator of future revenue. Companies like ASML can’t actually recognize these orders as revenue until they deliver the equipment. Net bookings increased by a staggering 169% from Q3 to nearly 7.1 billion euros. This was around double the figure analysts expected.

There are some important takeaways from ASML's results. They show that, at least for now, investment in AI chipmaking remains strong. This rings particularly true when looking at the company’s much higher-than-expected EUV bookings. Fabricators need these specific machines to make the most advanced AI chips. Overall, the strong bookings of these machines are a positive indicator for AI-driven parts of the semiconductor industry. However, the net bookings likely don't reflect changes in ASML customers' long-term capital spending due to DeepSeek.

ASML’s Chief Executive Officer indirectly addressed the implications of DeepSeek in an interview with CNBC. He said, “A lower cost of AI could mean more applications. More applications mean more demand over time. We see that as an opportunity for more chips demand." Overall, the CEO spun the potential democratization of AI through lower cost as driving higher volumes for its equipment. This feels like a fair take from the executive. 

However, if the industry sees it can make capable AI apps without the most advanced chips, demand for lower-cost ASML competitors could rise. ASML still completely dominates its market, but it isn’t the only player in lithography. Canon recently shipped its first nanoimprint lithography machine, which it hopes can rival ASML’s EUV machines. Manufacturers can use Canon’s machines to make chips using the 5-nanometer process. However, that’s still less advanced than the 4-nanometer NVIDIA (NASDAQ:NVDA) H800 chips DeepSeek apparently used to build its model. Overall, Canon has yet to pose a legitimate threat to ASML.

ASML still looks like it is on firm footing. To me, the implications of DeepSeek are currently neutral for the stock. Given the strong results and outlook, there could be significant upside in ASML shares as the AI revolution pushes forward and continues to evolve. Wall Street analysts' price targets tracked by MarketBeat see implied upside in ASML shares of over 30% as of the Jan. 29 market close.