ASML Holding NV shares tumbled in Europe after a months-long bipartisan investigation by the U.S. House Select Committee on the Chinese Communist Party (CCP), led by Chairman John Moolenaar (R-MI) and Ranking Member Raja Krishnamoorthi (D-IL), published new findings on Tuesday afternoon showing that American, Dutch, and Japanese semiconductor equipment firms have bolstered China's chipmaking capacity, including through sales to Chinese state-owned and military-linked entities.

ASML and other semiconductor equipment makers, including Tokyo Electron Ltd, Applied Materials Inc., KLA Corp., and Lam Research Corp, "made sizeable returns selling equipment to Chinese state-owned and military-linked companies," according to the Select Committee on China. 

Here are the key findings from the report:

Chairman Moolenaar stated that China is "growing its profits at the expense of U.S. national security", adding, "We must not allow this critical equipment to be handed over to our foremost adversary, or America could lose the technology arms race." 

National Security Concerns:

"It makes little sense to sell the CCP the chips they need to modernize their military and violate human rights. But it makes even less sense to sell them the machines and tools they need to produce those chips themselves. This bipartisan investigation reveals that the scale of these sales by Dutch, Japanese, and American firms is even more vast than we realized. Alongside our allies, we need to protect our national security and ensure we remain the world's leading innovators in SME," said Ranking Member Krishnamoorthi.

The investigation concludes: 

"The ability to design and produce semiconductors lies at the heart of the technology competition with China, and SME represents a crucial chokepoint that the U.S. and our allies currently have over China. As the U.S. government works with our allies and partners and plots the course ahead on export-control policy and related actions, this crucial chokepoint must be preserved, not squandered. The U.S. and allies only have the ability to export-control SME because we collectively are the world's leading innovators in SME. We must double down on our success."

Shares of ASML, Tokyo Electron, KLA, Applied Materials, and Lam Research all tumbled on their respective exchanges after the Select Committee on China released its report late Tuesday afternoon.

We doubt the Trump administration will launch a major crackdown on these semiconductor equipment makers just yet, given that President Trump and Chinese President Xi Jinping are scheduled to meet later this month in South Korea. The last thing Washington needs is added turmoil in Sino-US relations before the continuation of in-person trade talks, primarily as Trump officials work to secure a deal and move things forward.

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Read the U.S. House Select Committee on the Chinese Communist Party's (CCP) new report: