(Bloomberg) – Revenues of two Chip-Industry giants this week are expected to provide early insights into issues that have pierced investor confidence and valuations that have been valued over many years.
Taiwan’s semiconductor manufacturing company and ASML Holding NV have created a wider market sell-off, under pressure from U.S. tariffs and doubts about future AI demand. Chip maker TSMC fell about 20% this year, while chip equipment maker ASML fell 12%.
The rout saw TSMC’s forward price ratio reaching a two-year low a little while raising ASML to the cheapest level since Covid Pandemic.
Concerns about a potential slowdown in AI demand have been intensified after a series of analyst warnings, and tariff legends have put decisions from global companies on the back of the board. All of this makes investors focus on whether the appetite for AI chips can be held.
“The discounts for both ASML and TSMC are very heavy,” said Ben Barringer, a technical analyst at Quilter Cheviot. “But it’s hard to see a reassessment without more specific news because of what the tariffs on semiconductors would look like.”
While current quarterly earnings should show a sharp increase in sales and revenues for both companies, the focus will be on revenue guidance in the context of trade tensions and worsening macro backgrounds. There is a widespread expectation of changes in the outlook, and some analysts are working to withdraw guidance.
Global semiconductor stocks showed some signs of relief on Monday after the Trump administration waived reciprocity tariffs on smartphones and other electronic devices, a victory for iPhone Maker Apple Inc. and its suppliers, including TSMC. ASML’s chip manufacturing machine also waives additional taxes.
However, as the exemption is temporary, the probation may be brief, with the government pushing for tariff plans on semiconductor and drug imports through an investigation into both departments.
In addition to direct tariffs, the concern is that the full imposition of higher taxes will limit growth, which is for industries that are highly sensitive to the economic cycle. For chips used for AI workloads, even if they still have a heat requirement, the question is how long it will last.
“The ultimate sector tariffs will make investments in U.S. data centers more risky and may promote a greater slowdown in the construction of new data centers, which further increases the return risks for TSMC and supply chains,” said Morningstar analyst Phelix Lee.
Apart from the industry headwinds, both TSMC and ASML are struggling with their own problems. Reports related to potential collaborations at troubled Intel Corp. have cast a gloss on TSMC’s prospects, with analysts questioning the differences between the two companies in business models and toolsets given the strategic advantages of the move. It also promises to invest $100 billion in the U.S., which could hinder future profit margins.
For ASML, spending plans at its major customer Intel are still in a changing state as the U.S. chip maker has just appointed a new CEO. Meanwhile, another top customer, Samsung Electronics, faces production challenges in increasing cutting-edge chips.
“While TSMC and ASML largely explain the impact of global trade tensions in the current cyclical trough valuations, we expect some near-term downside risks for earnings over the next two quarters,” said Gary Tan, portfolio manager for Allspring Global Investments.
Bullish investors may argue that expectations have been adjusted a lot in the results. The technological advantages of the two companies remain unshakable. ASML’s advanced lithography tools are essential for manufacturing all cutting-edge chips. TSMC’s casting service is crucial to Nvidia and Apple’s chips as Intel and Samsung lag.
Still, more and more analysts choruses can predict future weaknesses, and many are lowering their stock price targets. While TSMC expects revenue to grow by 20% in 2025, JPMorgan believes chip makers will cut their targets slightly to target growth as low as 20% in the medium term.
As for ASML, investors expect guidance for 2025 will always be complete, while preparing for analysts’ estimated 2026 revenue, according to a survey by JPMorgan clients. Deutsche Bank AG said the company could also withdraw its guidance when customers adapt to tariffs.
Nori Chiou, investment director at White Oak Capital Partners, said the upcoming results for chipmakers are “not likely to be too bad” because demand for AI remains strong.
“But uncertainty about AI demand is rising next year,” Chiou said. “Police volatility could impact how the next long-term plan is formulated, which is something to watch out for.”
Earnings due Tuesday
– Assisted with Cindy Wang and Jane Lanhee Lee.
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