TSMC CoWoS chips: Sample microchips packaged using CoWoS at TSMC’s offices in San Jose, California, shown to CNBC on February 20, 2026.
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The two biggest names in chip manufacturing, Taiwan Semiconductor Manufacturing Co. and ASML, both reported strong earnings this week as demand for artificial intelligence chips continues to skyrocket.
But it didn’t matter to Wall Street.
TSMC on Thursday reported a 58% rise in first-quarter profit, beating estimates and setting a record. It was the fourth consecutive quarter of record profits for the world’s largest chip maker.
“AI-related demand remains extremely strong,” TSMC Chairman and CEO CC Wei said in an earnings call Thursday.
Yet TSMC shares fell nearly 3% on Thursday.
Sixty-one percent of TSMC’s total revenue in Q1 came from the high-performance computing segment, which includes AI chips made for its largest customer, Nvidia. That segment was up 55% from the previous quarter.
Jordan Klein of Mizuho Securities told CNBC in an interview, “The results have been good, but they were expected. And whenever people see some of these semis trade down to good numbers a little bit, it creates rapid money rotation.”
Gross margin also came in 66% higher than the previous quarter, possibly because TSMC’s dominance in leading chips allows it to raise prices for giant customers like Apple and Nvidia that rely heavily on chips made at 7 nanometers and less. Those advanced chips generated about 74% of revenue.
“I also think they’re taking away some of this more mature, lagging business and dedicating it to being more cutting-edge,” Klein said.
A weak point was smartphone revenue, which fell 11% compared to the previous quarter as the industry faces a memory shortage.
Investors were also looking at the effects of the Iran war. TSMC officials said they do not expect any near-term impact from energy and supply chain disruptions from the conflict, adding that it has a safety inventory of specialty gases such as helium and hydrogen.
ASML fell as much as 6.5% on Wednesday, although shares recovered to close about 2.5% lower amid concerns about declining sales in China and investors’ skyrocketing expectations. Shares slipped another 3% on 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.
As earnings season begins, the failure of any stock to catch a tailwind from positive reports could raise alarm bells for the broader chip industry.
It’s also the latest example of how astronomical expectations have weighed on chipmaker shares. Last quarter, Nvidia’s stellar fourth-quarter earnings report led to a 5% selloff.
chip manufacturing stage
ASML’s Extreme Ultraviolet Lithography machines cost more than $400 million each. They are the only machines in the world capable of producing the tiny designs needed to make the most advanced chips manufactured by TSMC for Apple, Nvidia, AMD, Google, and more. Amazon and more.
Yet the number of EUV machines ASML is building 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, or NA, EUV machines in 2027, “if customer demand really underpins it.”
“This may somewhat disappoint expectations that 90 is possible in 2027,” Barclays said in a note on Wednesday.
“If they could increase production, they would sell all that equipment,” Klein said. “It’s really hard to do, and these guys are smart and they won’t overpromise and underdeliver.”
TSMC’s capital expenditure projections – which included heavy spending on ASML machines – were another area of high investor scrutiny.
TSMC said Thursday it expects to spend $52 billion to $56 billion in 2026. This exceeds capital spending of $40.5 billion in 2025.
In today’s environment of heightened expectations, investors were expecting TSMC to exceed the 30% annual growth target set earlier this year.
TSMC largely stuck to that forecast on Thursday, saying it would come up by 30% and see second-quarter revenue rise by 10%.
“Keep in mind that TSM management is known as some of the most conservative management in the industry, and this has only been one quarter,” Klein said.
Klein said the company’s biggest gating factor for revenue growth is that it is likely to be “completely sold out” and “prices can only go up so much in any 12-month period.”
“They need to get more capacity for both front-end production and packaging, and that takes time,” Klein said. “This prepares them to have more capacity next year and potentially maintain growth.”
TSMC is building new advanced chip manufacturing plants in Arizona, but it may not be enough. Advanced packaging, in which chips are protected and connected to larger systems, is becoming the next hurdle in creating chips for AI.
Nvidia has snapped up most of TSMC’s capacity for its most advanced type of packaging, called Chip on Wafer on Substrate, or CoWOS. TSMC is expanding two new advanced packaging facilities in Taiwan and preparing to build two in Arizona later this year as it races to meet demand.
American chip maker Intel is the second leading company in advanced packaging. Intel has yet to secure a major outside customer in the race to catch TSMC in chip manufacturing, but advanced packaging could change that. Intel’s packaging customers include Amazon, Cisco and SpaceX, and a new commitment from Tesla.
Klein doesn’t expect Intel to overtake TSMC in advanced packaging.
“I think they’re going to become another option for customers who need capacity.”
SEE: Nvidia boosts AI chip packaging capacity as TSMC expands in US
— CNBC’s Christina Partsinevelos, Arjun Kharpal and Dylan Butts contributed to this report.
