ASML Dents AI Sentiment Later Reversed by TSMC

Chip manufacturing company ASML sent a sobering message to the technology industry in the middle of the week.​ What now?

A Bad Sign for the Chip Industry

A concerning sign for the chip industry, ASML reported their earnings earlier than planned by mistake, but the market was most disappointed by the drop in new orders. The share price fell 16% after the announcement, wiping over $50 billion off their market value, the worst single-day performance in 26 years. The report was so poor it dragged down technology sectors on both sides of the Atlantic. While sales beat expectations, new orders in September were only €2.6 billion, less than half of the €5.6 billion expected. ASML also cut their forecast for the coming year to the lowest end of the range they had previously announced.

CEO Christophe Fouquet spoke positively about AI's potential but pointed to the slow recovery in other industries and significant difficulties in China as export restrictions have hurt business in the large Asian market. In the company's conference call, CFO Roger Dassen was more explicit about the impact China was having on the slowdown in the company's outlook. Previously, the company said 49% of sales came from China, and the CFO expected that to fall to around 20% in the next year. Analysts suggested this gloomy outlook for the coming year would overshadow any positives recorded in Q3. The company noted customers who make logic chips are delaying orders and memory chip manufacturers plan "limited" orders.​​

TSMC Rides the AI Wave

Taiwan Semiconductor Manufacturing Company, commonly known as TSMC, reported earnings before the market opened on Thursday. Net profit increased significantly by 54%, beating analyst expectations. The company's American Depositary Share (ADS) price rose 6% in pre-market trading. This helped increase the share prices of chipmakers and major technology firms, reversing losses seen after ASML's earnings announcement.

Not only did the company's earnings increase but guidance was also raised and positive commentary provided around demand for AI applications and smartphones. Analysts saw this as displaying confidence in the future development of AI. TSMC now expects annual sales growth of around 30%, above the 20% forecast three months prior. The company also announced $30 billion in capital expenditure for the following year. This intends to expand new plants, including in Germany, with a focus on meeting the continued strong demand for AI chips.​

C&H Points to Higher Level

The share price of TSM reached a new record high of $212 following the announcement of its earnings results, leaving support at the round $200 and $190 swing as it continues to trade above $175. A potential cup-and-handle (C&H) pattern has formed that could increase prices towards the measured-move projection of $260 when adding the distance between $195 and $130 to the breakout point at $190.​ This leaves interim resistance at the round levels of $230, $240 and $250.

Source: SpreadEx / Taiwan Semiconductor

Key Takeaways

Chip manufacturer ASML reported weaker-than-expected orders and lowered forecasts, dragging down technology stocks as their CEO cited challenges in China from export restrictions. In contrast, TSMC reported higher profits that beat estimates and raised guidance on strong AI chip demand, helping tech stocks recover as analysts interpreted this as confidence in AI growth.