TSMC and ASML stock moves show sky-high investor hopes for chip sector
TSMC CoWoS chips: Sample microchips packaged using CoWoS at TSMC’s offices in San Jose, California, were shown to CNBC on February 20, 2026.
CNBC
Two of the biggest names in chip manufacturing, Taiwan Semiconductor Manufacturing Co. and ASML reported strong earnings this week as demand for AI chips remains high.
But that didn’t seem to matter to Wall Street.
TSMC reported a 58% jump in first-quarter profit on Thursday, beating forecasts and setting a new record. This was the fourth consecutive quarter of record profits for the world’s largest chipmaker.
“AI-related demand continues to be extremely strong,” TSMC CC President and CEO Wei said on Thursday’s earnings call.
But TSMC shares fell nearly 3% on Thursday.
61% of TSMC’s total revenue in the first quarter came from its high-performance computing segment, which includes artificial intelligence chips produced for its largest customer, Nvidia. This segment increased by 55% compared to the previous quarter.
“The results have been good, but they were expected to be so. And when people see some of these semis trading a little bit lower with good numbers, it creates a bit of a rapid currency rotation,” Jordan Klein of Mizuho Securities told CNBC in an interview.
Gross profit margins were also 66% higher than last quarter; This was likely because TSMC’s dominance in high-end chips allowed it to raise prices for major customers like Apple and Nvidia, which are heavily dependent on chips produced at 7nm and below. These advanced chips accounted for approximately 74% of revenue.
“I also think they’re dialing back some of this more mature, laggard business and dedicating it to more advanced technology,” Klein said.
One of the weak points was smartphone revenue, which fell 11% from the previous quarter as the industry faced ongoing memory shortages.
Investors were also looking for the effects of the Iran war. TSMC executives stated that they do not expect any impact in the near term due to the disruption of the energy and supply chain due to the conflict, adding that they have a security inventory consisting of special gases such as helium and hydrogen.
ASML fell as much as 6.5% on Wednesday, but shares closed about 2.5% lower on concerns about reduced sales to China and investors’ high expectations. Shares fell another 3% on Thursday.
The Dutch chipmaking equipment maker posted strong first-quarter results and raised its forward forecast, but that only put it at the level investors want to see.
The failure of either stock to be negatively impacted by positive reports could be a bellwether for the broader chip industry as earnings season progresses.
It’s also the latest example of how astronomical expectations are putting pressure on chipmaker stocks. Last quarter, Nvidia’s fourth-quarter earnings report was met with a 5% selloff.
State of chip construction
But the number of EUV machines ASML has produced for customers such as TSMC has failed to impress some analysts.
ASML CEO Christophe Fouquet said on Wednesday that the company could deliver 80 of its so-called low numerical aperture (NA) EUV machines in 2027 “if customer demand really supports it.”
“This could be somewhat disappointing given hopes that 90 could be possible in 2027,” Barclays said in a note on Wednesday. he said.
“If they could increase production, they would sell every single one of these tools,” Klein said. “It’s really hard to do, and these guys are smart and they’re not going to overpromise and underdeliver.”
TSMC’s CapEx forecasts, which include high spending on ASML machines, were another area investors scrutinized heavily.
TSMC said Thursday it expects to spend $52 billion to $56 billion in 2026. This is an increase from 2025’s $40.5 billion in capital spending.
In today’s environment of extremely high expectations, investors expected TSMC to exceed the targeted 30% annual growth target it set earlier this year.
TSMC was fairly consistent with that forecast on Thursday, saying it would rise above 30% and see a 10% increase in second-quarter revenue.
“Keep in mind that TSM management is known as one of the most conservative managements in the industry, and it’s only a quarter of that,” Klein said.
Klein said the company’s biggest driver of revenue growth is probably because it’s “completely sold out” and “can only raise prices so much in any 12-month period.”
“They need more capacity for both front-end production and packaging, and that just takes time,” Klein said. “This allows them to gain more capacity next year and potentially continue to grow.”
TSMC is increasing the number of new advanced chip manufacturing facilities in Arizona, but that may not be enough. Advanced packaging, where chips are protected and connected to larger systems, is quickly becoming the next bottleneck in chipmaking for AI.
Nvidia has purchased the vast majority of capacity for TSMC’s most advanced type of packaging, called Chip on Wafer on Substrate, or CoWoS. TSMC is expanding two new advanced packaging facilities in Taiwan and is preparing to build two new packaging facilities in Arizona later this year as it tries to meet demand.
US chipmaker Intel is the other leader in advanced packaging. Intel has yet to find a major external customer in the race to catch up to TSMC in chip production, but advanced packaging could change that. Intel’s packaging customers include Amazon, Cisco and SpaceX, as well as Tesla’s new commitment.
Klein doesn’t expect Intel to surpass TSMC in advanced packaging.
“I think they will be another alternative for customers who need capacity.”
Watch: Nvidia ramps up AI chip packaging capacity as TSMC expands in US
CNBC’s Kristina Partsinevelos, Arjun Kharpal and Dylan Butts contributed to this report.
