ASML and TSMC Strong Earnings Confirm Intact AI Spending Boom for Chip Designers

What's happening

Taiwan Semiconductor Manufacturing Company delivered Q1 2026 results that exceeded analyst expectations, reporting net profit of NT$572.5 billion ($18.2 billion), a 58% increase from the prior year and above the NT$543.3 billion forecast. Revenue reached NT$1,134 billion ($35 billion), up 35% year-over-year and beating the NT$1,127 billion estimate. The world's largest contract chipmaker guided for full-year 2026 revenue growth exceeding 30% in USD terms and projected Q2 revenue of $39-40.2 billion, representing 10% quarter-over-quarter growth.

ASML Holding reported Q1 2026 net sales of €8.8 billion with gross margins of 53.0%, generating net income of €2.8 billion. The Dutch lithography equipment maker, which produces the extreme ultraviolet systems essential for manufacturing advanced semiconductors, raised its 2026 net sales forecast to €36-40 billion from the previous range of €34-39 billion. TSMC CEO C.C. Wei stated that "AI demand is so strong" and noted that "capacity is very tight," prompting the company to increase capital expenditures to the high end of its $52-56 billion range for 2026.

Why it matters for markets

The robust earnings from both companies validate the sustained artificial intelligence infrastructure buildout driving unprecedented demand for advanced semiconductors. TSMC reported that high-performance computing, primarily AI-related applications, accounted for 61% of Q1 revenue, up from 55% in the previous period, while advanced chips using 7-nanometer processes and below represented 74% of total revenue. This concentration in cutting-edge technology nodes directly benefits chip designers like Nvidia and AMD, whose processors require TSMC's most advanced manufacturing capabilities.

The earnings results arrive as hyperscale cloud providers including Alphabet, Meta, Microsoft, and Amazon are expected to spend over $600 billion on data center infrastructure in 2026. TSMC's decision to increase capital expenditures to $55-56 billion, at the high end of its guidance range, signals confidence in sustained demand and the need to expand production capacity for AI accelerators and other high-performance computing chips. ASML's raised revenue guidance to €36-40 billion reflects continued orders for EUV lithography systems required to manufacture these advanced processors.

Despite the strong financial performance, both stocks declined following earnings announcements, with TSMC shares falling approximately 3% and ASML dropping 6.5% initially before recovering partially. The market reaction suggests investors may have expected even stronger results or guidance, though the fundamental demand trends remain intact across the semiconductor manufacturing ecosystem.

Sectors and assets to watch

Semiconductor foundries and equipment manufacturers stand to benefit most directly from the sustained AI infrastructure spending cycle. TSMC's results provide positive read-through for fabless chip designers, particularly Nvidia, which relies on TSMC's advanced process nodes for its H100 and upcoming Blackwell AI accelerators, and AMD, whose EPYC data center processors and Instinct MI-series AI chips are manufactured by the Taiwanese foundry. Both companies' products fall within TSMC's high-performance computing segment that drove 61% of Q1 revenue.

ASML's raised guidance signals continued strength for the broader semiconductor capital equipment sector, as the company's EUV lithography systems remain essential for producing chips at 7-nanometer processes and below. The equipment maker's monopoly position in EUV technology makes it a critical enabler for the advanced node production that TSMC and other foundries require to meet AI chip demand. Memory manufacturers and other semiconductor companies utilizing cutting-edge process technologies also depend on ASML's systems for production expansion.

What to watch next

Investors should monitor upcoming earnings from Nvidia and AMD to confirm whether TSMC's strong AI-related revenue translates to robust results for chip designers. Key metrics include data center revenue growth rates, AI accelerator shipment volumes, and forward guidance for the remainder of 2026. Additionally, watch for capital expenditure announcements from hyperscale cloud providers during their earnings calls, as sustained spending above the projected $600 billion threshold would support continued semiconductor demand growth and validate the multi-year AI infrastructure investment cycle.