TSMC CoWoS chips: Sample microchips packaged using CoWoS at TSMC’s offices in San Jose, California, shown to CNBC on February 20, 2026.
CNBC
Two of the biggest names in chip manufacturing, Taiwan Semiconductor Manufacturing Co. and ASML, both reported strong earnings this week as demand for artificial intelligence chips remains sky high.
But that didn’t seem to matter to Wall Street.
TSMC reported a 58% increase in first-quarter profits Thursday, beating estimates and hitting a new record. It was the fourth-consecutive quarter of record profits for the world’s largest chip manufacturer.
“AI-related demand continues to be extremely robust,” President and CEO of TSMC C.C. Wei said in an earnings call Thursday.
Yet TSMC shares fell about 3% on Thursday.
61% of TSMC’s overall revenue in Q1 came from the high-performance computing segment, which includes AI chips made for its largest customer, Nvidia. That segment was up from 55% the previous quarter.
“The results have been good, but they were expected to be. And whenever people see some of these semis trade a bit down on good numbers, that creates a little bit of a fast money rotation,” Jordan Klein of Mizuho Securities told CNBC in an interview.
Gross margins also came in higher than last quarter at 66%, likely because TSMC’s dominance in leading-edge chips allows it to raise prices for huge customers like Apple and Nvidia that rely heavily on chips made at 7nm and below. Those advanced chips made up about 74% of revenue.
“I also think that they’re turning away some of this more mature, lagging-edge business and devoting it to more leading-edge,” Klein said.
One weak point was smartphone revenue, which fell 11% compared to the previous quarter as the industry faces an ongoing memory shortage.
Investors were also looking for impacts from the Iran war. TSMC executives said they don’t expect any near-term impact from energy and supply chain disruption from the conflict, adding that it has a safety inventory of specialty gases, such as helium and hydrogen.
ASML dropped as much as 6.5% on Wednesday, though shares came back to close about 2.5% lower, amid concerns over shrinking sales to China and sky-high expectations from investors. Shares sank another 3% Thursday.
The Dutch maker of chip manufacturing equipment posted strong first-quarter results and raised its forward guidance, but that only brought it in line with what investors wanted to see.
The failure of either stock to catch a tailwind from positive reports could be a bellwether for the wider chip industry as earnings season rolls on.
It is also the latest example of how astronomical expectations have weighed on chipmaker stocks. Last quarter, Nvidia’s blowout fourth-quarter earnings report was met with a 5% sell-off.
The state of chipmaking
ASML’s extreme ultraviolet lithography machines cost upwards of $400 million each. They’re the only machines in the world capable of etching the minuscule designs necessary for making the most advanced chips that TSMC manufactures for Apple, Nvidia, AMD, Google, Amazon and more.
Yet the number of EUV machines ASML reported it’s making for customers like TSMC failed to impress some analysts.
ASML CEO Christophe Fouquet said Wednesday the company could deliver 80 of its so-called low numerical aperture (NA) EUV machines in 2027, “if customer demand really underpins” it.
“This could disappoint somewhat with hopes 90 is possible in 2027,” Barclays said in a note on Wednesday.
“If they could get production up, they’d sell every one of those tools,” Klein said. “It’s just really, really hard to do, and these guys are smart and they’re not going to overpromise and under-deliver.”
TSMC’s CapEx projections — which included hefty spend on ASML machines — were another area of high investor scrutiny.
TSMC said Thursday it expects to spend $52-$56 billion in 2026. That’s up from $40.5 billion CapEx in 2025.
In today’s environment of exceedingly high expectations, investors were looking for TSMC to blow past its targeted 30% annual growth set earlier this year.
TSMC held fairly steady on that prediction Thursday, saying it will come in above that 30% and will see a 10% increase in second-quarter revenue.
“Keep in mind that the TSM management is known to be some of the most conservative in the industry, and it’s only been one quarter,” Klein said.
Klein said the company’s biggest gating factor for revenue growth is that it’s likely “fully sold out” and “can only raise prices so much in any given 12 month period.”
“They need to get more capacity, both for front-end production and packaging, and it just takes time,” Klein said. “This sets them up next year to get more capacity and potentially sustain the growth.”
TSMC is ramping up new advanced chip fabrication plants in Arizona, but that may not be enough. Advanced packaging, in which chips are protected and connected to larger systems, is quickly becoming the next bottleneck in making chips for AI.
Nvidia has snapped up the majority of capacity for TSMC’s most advanced type of packaging, called Chip on Wafer on Substrate, or CoWoS. TSMC is ramping two new advanced packaging facilities in Taiwan and preparing to build two in Arizona later this year as it races to fill demand.
U.S. chipmaker Intel is the other leader in advanced packaging. Intel has yet to secure a major external customer in its race to catch TSMC in chip manufacturing, but advanced packaging could change that. Intel’s packaging customers include Amazon, Cisco and a new commitment from SpaceX and Tesla.
Klein doesn’t expect Intel to edge out TSMC in advanced packaging.
“I just think that they’re going to be another alternative for customers that need capacity.”
Watch: Nvidia snaps up AI chip packaging capacity as TSMC expands in U.S.
CNBC’s Kristina Partsinevelos, Arjun Kharpal and Dylan Butts contributed to this report.
