Taiwan Semiconductor Manufacturing Company (TSM) and ASML Holding (ASML) both reported first-quarter earnings that exceeded analyst estimates and raised their full-year guidance, sparking a broad rally in semiconductor stocks. The results suggest that demand for advanced chips used in artificial intelligence data centers remains stronger than feared, even as consumer-facing chip demand stays uneven.
Taiwan Semiconductor beats on revenue and margins
Taiwan Semiconductor reported first-quarter revenue of $25.5 billion, up 42 percent year over year and ahead of the consensus estimate of $24.8 billion. Gross margins expanded to 58.3 percent, driven by higher utilization rates at its 3-nanometer fabrication facilities and improved pricing power for AI-related chip production.
The company raised its full-year capital expenditure outlook to $42 billion, an increase of $4 billion from its prior guidance. Management cited unprecedented demand for advanced process nodes from cloud computing customers. Taiwan Semiconductor also confirmed that it is on track to begin volume production of 2-nanometer chips in late 2026.
ASML benefits from capacity expansion orders
ASML, the Dutch company that supplies the lithography equipment used to manufacture the most advanced semiconductors, reported revenue of $8.2 billion in the first quarter. Net bookings, a forward-looking indicator, totaled $12.1 billion, well above analysts’ expectations of $8.9 billion.
The strong bookings figure suggests that Taiwan Semiconductor, Samsung, and Intel are all accelerating their capacity expansion plans. ASML’s high-NA EUV machines, which cost over $350 million each, accounted for a growing share of the order book. The company raised its full-year revenue guidance to a range of $36 billion to $38 billion.
| Company | Q1 Revenue | YoY Change | EPS Beat | Guidance Revision |
|---|---|---|---|---|
| TSM | $25.5B | +42% | +$0.18 | Raised capex to $42B |
| ASML | $8.2B | +28% | +$0.91 | Raised revenue to $36-38B |
| Broadcom | $14.9B | +22% | +$0.34 | Affirmed |
| Marvell | $1.77B | +35% | +$0.08 | Raised |
What the results mean for chip investors
The divergence within the semiconductor sector is becoming more pronounced. Companies exposed to AI infrastructure spending are posting strong results and raising guidance. Meanwhile, firms tied to consumer electronics, automotive, and industrial end markets continue to struggle with inventory corrections.
For conservative investors, this creates a selective opportunity. The AI-driven chip cycle appears to have more room to run, but investors should avoid broad-based semiconductor exchange-traded funds (ETFs) that hold significant positions in weaker sub-sectors.
Competitive dynamics in advanced nodes
Taiwan Semiconductor’s dominance in advanced process nodes remains unchallenged. Samsung has struggled with yield issues at its 3-nanometer node, while Intel’s foundry business continues to burn cash as it tries to catch up. ASML’s monopoly in EUV lithography equipment means that any company attempting to manufacture advanced chips must go through the Dutch firm, giving it extraordinary pricing power.
The geopolitical risk surrounding Taiwan Semiconductor’s concentration in Taiwan remains a concern. The company is building new fabs in Arizona, Japan, and Germany to diversify its geographic footprint.
Valuation and dividend considerations
Taiwan Semiconductor trades at approximately 22 times forward earnings, a reasonable valuation for a company growing revenue at 40 percent annually. The stock carries a dividend yield of roughly 1.4 percent, which, while modest, has grown consistently over the past decade.
ASML trades at a higher multiple of 32 times forward earnings. The dividend yield is 0.9 percent, which is less attractive for income-focused investors.
For investors aged 55 to 75, a small position in Taiwan Semiconductor within a diversified technology allocation may be appropriate. The company’s dominant market position and exposure to a multi-year AI buildout provide a favorable risk-reward profile.
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