DeepSeek sent shockwaves through the AI investing world recently when it announced that it trained its AI model for just $5.6 million. As a result, many investors were worried that the entire AI support industry could come crashing down. They assumed that there wouldn't be as much demand for chips or tools to make chips because the models were going to become more efficient.

However, one of the most critical machine providers in the chip manufacturing business is even more bullish on the industry after DeepSeek's R1 launch. This CEO is Christophe Fouquet, head of ASML (ASML 0.05%), and his company may be the most critical in the chip value chain.

ASML's CEO believes his company will benefit from improving AI models

ASML makes lithography machines that etch the microscopic electrical traces on a chip. Without ASML, none of the cutting-edge chips produced today would be possible. ASML is the only company in the world capable of manufacturing extreme ultraviolet (EUV) machines, giving it a rare technological monopoly. It will be nearly impossible to catch or duplicate what ASML has achieved, as it represents billions of investment dollars and decades of research to get to where it is now.

With its technological monopoly, it has a great pulse on the chip industry, as capacity expansion for these companies is planned years in advance. Fouquet does not see any slowdown in orders; in fact, ASML saw net bookings of 7.09 billion euros, while analysts were only expecting 3.99 billion euros. But probably the most revealing stance is that he believes that low-cost models will increase the demand for chips, not decrease it.

This idea is known as the Jevons paradox, named after an English economist, William Jevons, who observed that coal usage increased during the Industrial Revolution after more efficient ways to use it came about. As AI models become more accessible and cheaper to run, they're going to attract more users, which will, in turn, require increased computing infrastructure. This is why many investors (like myself) are still bullish on the chip industry.

The stock is priced to buy

ASML hasn't had a straight-up trajectory like some of its chip-manufacturing customers. A few months ago, it reduced its 2025 revenue guidance and didn't update it during its Q4 earnings announcement. For fiscal 2025, ASML projects revenue to come in between 30 billion and 35 billion euros, indicating around 15% growth at the midpoint.

That's still a strong growth figure, yet the stock is down more than 30% from its all-time high because the original guidance was between 30 billion and 40 billion euros. With ASML's unique market position, I think this is a ridiculous response, as its machines are required to produce all of the cutting-edge chips needed to run AI models.

As for valuation, ASML shares are fairly reasonable at 30 times forward earnings.

ASML PE Ratio (Forward) data by YCharts

That 30 times forward earnings makes even more sense when you consider its monopoly position, plus the long-term growth trajectory of the business. At its 2024 investor day, ASML revealed guidance for 2030 that indicated its revenue will be between 44 billion and 60 billion euros. That means its revenue is projected to grow at a compound annual rate between 8% and 13%.

Alongside a 1% dividend and a strong share repurchasing track record, ASML is likely to grow earnings per share at a low- to mid-teens rate, setting it up nicely to beat the market. ASML is in a solid position to grow over the next few years. With the reasonably priced stock and a great capital allocation strategy, ASML makes for a great buy.