Chipmakers' stocks resumed their decline after a brief respite: What do TSMC and ASML have to do with this?

Shares of chipmakers resumed their decline on Thursday after a few days of respite, putting pressure on the stock market. Following earnings reports from market-moving companies ASML and TSMC, investors are questioning whether massive investments in artificial intelligence can justify the high valuations of tech companies, according to Bloomberg. The Philadelphia Semiconductor Index fell as much as 5% on July 16.

On Thursday, contract chipmaker TSMC reported better-than-expected results and raised its revenue forecast, but at the same time announced much larger investments in expanding production. The chipmaker reported that its net income for the quarter rose 77% year-over-year, but capital expenditures for 2026 will increase to $60–64 billion from January’s forecast of $52–56 billion: the upper limit rose by 14% at once. The company also stated that its spending over the next three years will be significantly higher than it was over the previous three years.

In Europe, ASML, a manufacturer of chip-making equipment, also reported results that exceeded analysts' expectations. The company also noted that a number of customers have revised their investment plans for 2026 upward.

But these results proved insufficient to convince investors to increase their holdings in the companies’ shares, according to CNBC. TSMC’s American Depositary Receipts (ADRs) fell 3.8% on Thursday. ASML shares traded in the U.S. lost more than 1%. The market’s reaction points to a common factor: expectations for the current earnings season have been set extremely high, CNBC notes.

The Nasdaq 100 index fell about 1.6% on Thursday. Meanwhile, the S&P 500 fell by only 0.6%. Traders are trying to figure out whether tech stocks have become too expensive amid uncertainty about when trillions in investments will start yielding significant returns, Bloomberg reports. The four largest U.S. players in the AI sector, including Meta Platforms and Alphabet, are expected to spend more than $725 billion this year alone.

If the market reaction to TSMC and ASML’s earnings reports is any indication, companies such as Nvidia and Micron Technology will have to post nearly flawless results for the semiconductor sector’s growth to continue, CNBC notes. On Thursday, Nvidia shares fell 2.7%, while Micron shares dropped 6.4%. Broadcom shares also fell 4.6%, Intel shares fell 6.4%, and AMD shares fell 6.5%.

TSMC’s stock’s such a negative reaction to its strong earnings report likely heightens investors’ concerns about this segment, which is crucial to the market, according to Miller Tabak strategist Matt Meli. “The performance of chipmakers’ stocks remains the most important issue for the stock market,” Bloomberg quotes him as saying. “There are definitely noticeable signs of weakness in the sector, so it will need a strong and sustained recovery in the near term; otherwise, real warning signs will start to appear.”

Traders “expressed disappointment with some details” of TSMC’s report, noted Vital Knowledge founder Adam Krizafulli, as quoted by CNBC. In addition, they are “trying to understand what consequences another increase in the capital expenditure budget will entail: historically, a sharp rise in spending and production capacity has been a reason to sell cyclical stocks, rather than buy them on the back of growth,” Krizafulli noted.

Commenting on ASML’s report, Wells Fargo analysts pointed to “limited production capacity for extreme ultraviolet lithography equipment in North America” in fiscal year 2027 as one of the weaknesses in the forecast, CNBC reports. ASML is the world’s only manufacturer of EUV systems used in the production of cutting-edge chips.

This article was AI-translated and verified by a human editor