Europe's leading technology firm confronts fresh pressure following reports that China has advanced toward replicating its specialized equipment vital for the worldwide semiconductor sector.

ASML stock, representing the sole enterprise globally equipped to mass produce extreme ultraviolet lithography tools for fabricating advanced chips, declined more than 5 percent in early Tuesday trading after news emerged of progress by a Chinese competitor.

The Information and Reuters disclosed on Monday and Tuesday that a firm backed by the Chinese government had started production of immersion deep ultraviolet DUV lithography systems.

This development poses a clear challenge to ASML, which leads the DUV equipment market and has experienced rising orders lately due to heightened demand from the artificial intelligence expansion.

ASML offered no immediate reply to inquiries for comment.

ASML shares also ended nearly 6 percent lower on Monday. The DUV systems under development in China remain in initial phases and have not yet reached parity with ASML capabilities, according to Reuters and The Information citing informed sources.

China aims to produce five such DUV machines this year and about 20 the following year, far fewer than the 130 comparable units ASML projects to deliver in the current year.

Still, this marks the newest chapter in China's extended effort to replicate ASML technology and narrow the gap with Western capabilities in advanced chip production, a key constraint in developing leading artificial intelligence systems.

The Dutch company has faced prior incidents of Chinese espionage attempts, while US and Dutch rules prohibit exports of its top extreme ultraviolet EUV lithography machines, which employ ultraviolet light to etch microscopic patterns onto wafers, to China.

The news follows ASML plans to expand output capacity for its large EUV machines amid strong demand growth.

The chief financial officer stated this month that the increased capacity will support Elon Musk Terafab semiconductor initiative, where Tesla and SpaceX plan to construct a major 55 billion dollar chip fabrication facility.

ASML equipment is vital for Terafab success. Prior reports noted that Musk joined an internal ASML session last month during SpaceX IPO preparations to discuss the project with staff.