Despite reporting record revenues, semiconductor companies have seen their share prices fluctuate sharply in recent weeks. The current earnings season will reveal whether the euphoria on Wall Street still has room to continue. Strong financial results alone, however, are no longer enough for investors–they expect perfection. Companies must now clear an already exceptionally high bar.
The earnings season began this week with two companies positioned at the very start of the AI semiconductor supply chain. On Tuesday, Dutch lithography equipment maker ASML once again reported record results. The company said the strongest demand came from memory chip manufacturers, where sales increased 75% year over year. That demand is driven by the industry’s three dominant players–Micron, SK Hynix, and Samsung–which are currently benefiting from what appears to be the strongest memory cycle in history and are aggressively expanding production. ASML shares rose 5% this week but remain below their previous peak.
There are still no signs that AI–related manufacturing expansion is slowing. More important than this quarter’s strong earnings is the company’s commitment to expanding capacity at least through 2028. ASML’s management is signaling that it expects sustained long–term demand rather than a temporary boom.
On Thursday, Taiwan’s TSMC also reported exceptionally strong results, confirming another outstanding quarter. Revenue reached the equivalent of $40.2 billion, up 36% year over year, while net profit surged 77%. The company also raised its full–year revenue growth forecast from around 30% to more than 40% and announced that it plans to invest a record $60–64 billion in expanding production capacity this year.
Unlike companies such as Nvidia or AMD, TSMC does not design chips itself. Instead, it manufactures them for other companies under contract. It dominates this market with more than a 70% global market share and holds an effective monopoly in the production of the world’s most advanced chips. Intel is its primary challenger, but virtually every cutting–edge processor from Nvidia, Apple, and AMD is manufactured in TSMC’s fabs. As a result, TSMC’s earnings are widely viewed as a leading indicator for the entire semiconductor industry.
Despite its strong results, TSMC shares fell as much as 7%, as investors reacted negatively to the company’s massive capital spending plans. The reasoning is understandable. The industry is currently benefiting from demand significantly exceeding supply. Building new manufacturing capacity will require tens of billions of dollars while also bringing substantially more supply to the market. Historically, semiconductor companies have often overexpanded during boom periods, leading to oversupply and sharp downturns. Investors appear to be trying to leave the trade before that happens.
Wall Street is increasingly questioning whether investor optimism has run ahead of market reality. Despite the positive news, many AI–related stocks have entered bear market territory in recent weeks. SK Hynix, for example, is now almost 40% below its peak. The real risk is therefore not the health of the industry itself, but whether its performance will be sufficient to justify valuations after some stocks have risen by several hundred percent this year. Following such extraordinary gains, markets can react disproportionately to even minor disappointments.
Well–known investor Michael Burry has, for example, taken a bearish position against Micron. His thesis is based on the highly cyclical nature of the memory market, where periods of explosive growth are typically followed by sharp declines in both profits and share prices. The industry currently appears to be at the peak of the memory supercycle. However, no one can say with certainty how much longer this cycle will last.
For investors, the key focus over the coming weeks will be companies’ guidance for the second half of the year. The biggest risk may not necessarily be weakening demand for AI chips. Instead, limited manufacturing capacity at key suppliers such as TSMC could slow the growth of the entire industry. If companies are unable to secure enough production capacity, they may fail to meet growth expectations, potentially putting pressure on semiconductor stocks–particularly those that rely on TSMC for manufacturing.
For now, however, corporate earnings continue to suggest that the AI revolution is far from slowing down. Market sentiment has nevertheless weakened, and reviving the rally will likely require another meaningful acceleration in demand for AI chips.
