TSMC $TSM and ASML $ASML Soar on AI Demand, Chip Stocks Sell Off on Valuation Fears

The semiconductor sector tumbled this week despite $TSM and $ASML reporting blockbuster Q2 earnings fueled by AI demand, with investors pivoting from fundamentals to valuation concerns. Taiwan Semiconductor posted 34% year-over-year revenue growth to $40.7 billion, while ASML delivered €9.3 billion in net sales and raised its 2026 full-year guidance to €43–€45 billion fool.com fool.com.

What Happened

Both giants beat estimates and signaled accelerating AI infrastructure spending, yet their shares and the broader chip complex declined. $TSM revenue jumped 34% to $40.7 billion with expanding gross margins, driven by leading-edge process technologies and agentic AI demand fool.com. $ASML reported EPS of $8.69, beating forecasts by 9.3%, and lifted its full-year outlook citing robust demand for EUV lithography tools in logic and memory fool.com benzinga.com.

Despite the positive prints, the semiconductor trade extended one of its worst weeks of the year. Investors fled the AI hardware trade after Moonshot AI unveiled Kimi K3—a 2.8-trillion-parameter open-weight model—shaking confidence in U.S. AI dominance and triggering a tech rout benzinga.com. General uncertainties, including Iran conflict risks and U.S. price pressures, further weighed on sentiment fool.com.

Analyst Take

Analysts remain divided on whether demand growth is already priced in. DA Davidson called $TSM’s capex increase "highly bullish," noting it targets continued demand for leading-edge chips and agentic AI benzinga.com. Analyst Gil Luria reiterated a Buy on $TSM, raising the price target to $500 benzinga.com. Meanwhile, Jefferies downgraded $ASML from Buy to Hold, slashing its 2026 growth forecast from 7% to a potential 2% decline due to Trump-era tariff threats and geopolitical fog benzinga.com.

UBS and Barclays maintain bullish views on the semiconductor trade despite the tumble, arguing that multi-year order visibility and monopolistic positions—especially $ASML’s EUV dominance—justify long-term holds cnbc.com. However, the disconnect between robust earnings and negative price action signals a critical inflection point for AI hardware stocks fool.com.

What to Watch

Valuation Reset: $TSM trades at a forward P/E of ~20x next year’s earnings; investors will reassess if demand growth is fully priced in across the supply chain fool.com fool.com.
Geopolitical Risks: Trump’s tariff threats and Iran conflict uncertainties could freeze 2026 demand, per ASML CEO Christophe Fouquet benzinga.com.
AI Competition: China’s Kimi K3 model release may accelerate global AI infrastructure buildouts or erode U.S. pricing power benzinga.com.
Capex Guidance: $TSM’s raised full-year capex signals confidence in sustained AI demand, a key metric for tracking supply chain health benzinga.com.

TSMC $TSM and ASML $ASML Soar on AI Demand, Chip Stocks Sell Off on Valuation Fears