Some of China’s leading makers of DRAM chips are likely to be sanctioned by the US government in Washington’s latest attempt to slow down China’s tech ambitions, according to German investment giant Deutsche Bank.

The firm made the assessment as part of a research note lowering the price target for shares of Dutch chip equipment giant ASML, on the back of a potential hit to its sales in China.

“We expected investment in mainstream nodes in China to remain robust, but that does not seem to be the case now that there are signs of overcapacity,” Deutsche Bank analyst Robert Sanders said in the note on Wednesday, according to ABM Financial News.

“Spending in China has thus become dependent on the ambitions of DRAM giants such as CXMT, Wuhan Xinxin and SwaySure, to which the US may apply export restrictions,” Sanders wrote.

The three chipmakers have been in the crosshairs of US officials due to their headways making high bandwidth memory (HBM) semiconductors used in artificial intelligence chipsets and their association with sanctioned Chinese tech giant Huawei.

ChangXin Memory Technologies (CXMT), China’s top manufacturer of DRAM chips, has already developed sample HBM chips despite Washington’s measures since 2022 to restrict flows of advanced chipmaking technologies to China.

Similarly, Wuhan Xinxin is building a factory that will be able to produce 3,000 12-inch HBM wafers, according to Reuters. Construction of the factory began in February this year, according to documents from corporate database Qichacha, Reuters said.

SwaySure, meanwhile, has been on the US government’s radar for its links to Huawei — a firm that has quickly emerged as an important player in the Chinese semiconductor industry.

Huawei’s launch of its Mate 60 smartphone last year rang alarm bells in Washington, after a teardown of the phone showed the company had managed to successfully develop China’s first-ever homegrown 7 nanometre (nm) chip. Huawei developed the chip with China’s largest chipmaker Semiconductor Manufacturing International Corporation (SMIC).

Washington said SMIC had violated sanctions in the process, and has since made a concentrated effort to slow down Huawei’s progress. It has also been scrutinising firms like SwaySure and CXMT as part of those efforts.

ASML’s China revenue set to sink

The possible sanctions against the Chinese chipmakers were “not ideal for investors in ASML,” Deutsche Bank warned.

ASML is Europe’s most valuable tech company and has earned nearly half of its revenue this year from Chinese customers.

But the Netherlands government has, since the start of this year, imposed serious export restrictions on the firm. ASML now needs licenses to sell a wide range of chipmaking equipment to China and also for servicing and maintaining billions of dollars of machines it has already sold to Chinese customers.

ASML makes about 25% of earnings from servicing, maintenance and upgrades of its growing installed base of equipment.

The new restrictions and the potential new risks in the Chinese market would translate to a 22% drop in ASML’s revenue from China, Deutsche Bank’s note said.

The bank lowered its price target for ASML shares from 1,100 to 950 euros. The firm, currently trading at 747.7 euros, was up nearly 5% in European trade on Thursday.