LONDON — European semiconductor stocks jumped on Thursday after Taiwan Semiconductor Manufacturing Company reported a record fourth-quarter profit, reinforcing the view that the artificial intelligence hardware cycle is far from peaking and sending shares in Dutch lithography champion ASML up sharply in both Amsterdam and New York. Investors rotated back into chip equipment and design names across the region as the scale of TSMC’s earnings beat and its updated capital spending plans filtered through trading desks. The move extended a broader global semiconductor rally that gathered pace in early January as traders priced in stronger AI-related investment and a softer interest-rate path. For many portfolio managers, the latest numbers signaled that leading-edge manufacturing capacity and the tools that support it remain scarce assets with significant pricing power.
TSMC’s record quarter and spending signal
The catalyst for Thursday’s moves was TSMC’s latest quarterly report, which showed net profit for the fourth quarter climbing to a record level on the back of surging demand for advanced chips used in servers, accelerators and high-end smartphones. Management reported net income of about T$505.7 billion for the three months to December, up roughly 35% year-on-year, outpacing market estimates and marking a seventh straight quarter of double-digit profit growth. Revenue for the quarter rose to just over T$1.04 trillion, an increase of about 20% from the same period a year earlier, driven by strong uptake of three-nanometre and five-nanometre products that sit at the core of current AI and cloud computing build-outs. The company highlighted that high-performance computing applications accounted for more than half of sales in the period, underscoring how AI-centric workloads increasingly dominate its mix.
Alongside the headline profit figures, traders focused on TSMC’s capital expenditure plans and its commentary on 2026 growth. Management indicated that annual capital spending on new fabs and equipment for 2025 came in at around $40.9 billion, one of the largest investment programmes in the sector, and signaled that outlays would remain elevated as it ramps three-nanometre volume and prepares two-nanometre capacity. Forecasts cited by the company pointed to revenue growth in the mid-20% range in 2026 in U.S. dollar terms, up from earlier projections in the low-to-mid twenties, reflecting upgraded expectations from industry researchers who cited accelerating orders for AI server chips. For equity markets, those numbers translate directly into sustained demand for leading-edge tools, packaging technologies and materials, particularly from suppliers with exposure to extreme ultraviolet lithography and advanced process nodes.
ASML’s outsized move and valuation implications
ASML, the dominant producer of extreme ultraviolet lithography systems used to etch the smallest features on cutting-edge chips, was among the biggest beneficiaries of the TSMC-driven repricing. Its shares in Amsterdam climbed by around 7% in Thursday trade, outpacing broader European indices and adding several billion euros to its market capitalization in a single session. The move built on gains earlier in the month, when the stock had already risen close to the mid-teens percentage range for the year as investors positioned for an upturn in orders from foundries and memory makers. In U.S. trading, ASML’s New York-listed shares mirrored much of that strength, reflecting global demand for exposure to critical infrastructure in the AI supply chain.
The rally also sharpened the debate over valuation and earnings durability in Europe’s most valuable technology group. Analysts who remain constructive on the name argue that ASML’s order book trajectory and its near-monopoly in high-end lithography justify premium multiples, particularly if TSMC and its peers follow through on multi-year expansion plans at advanced nodes. Others point to prior episodes in which strong quarterly beats were later followed by guidance resets and share price volatility when customers recalibrated capex in response to macroeconomic conditions or regulatory changes. With ASML due to report its own fourth-quarter and full-year 2025 results toward the end of January, market pricing now embeds a higher bar for bookings and commentary on 2026, increasing the risk of sharp moves if the company signals caution.
Broader European chip rally and index impact
Beyond ASML, gains rippled through the broader European semiconductor complex, lifting regional benchmarks and sector indices. Equipment makers and chip designers with direct or indirect exposure to advanced foundries traded higher, as investors extrapolated TSMC’s strength into expectations for tool orders, design wins and service revenue over the next four to six quarters. The technology sub-index within the main pan-European benchmark advanced markedly, helping push the overall market higher and reinforcing the sector’s role as a key driver of regional equity performance during AI-related upswings. In some cases, smaller names with more cyclical exposure to memory or legacy nodes moved less dramatically, reflecting lingering concerns about inventory normalization outside the very high end.
The rally came against a backdrop of mixed macroeconomic signals in Europe, where slower growth and ongoing debates over fiscal consolidation have weighed on more domestically focused sectors. For globally oriented chipmakers and suppliers, however, the primary driver remains external demand tied to cloud, data center and edge-computing investments, much of it denominated in U.S. dollars. That dynamic has allowed the sector to decouple to some extent from regional economic data, though currency moves and policy shifts around export controls and subsidies continue to shape sentiment. Traders noted that the latest surge in European chip stocks also coincided with strength in U.S. semiconductor benchmarks, underlining how closely the markets trade off the same AI demand narrative and guidance updates from a small cluster of global leaders.
Structural tailwinds and policy backdrop in Europe
Thursday’s price action unfolded within a broader structural story about Europe’s attempt to rebuild and expand its semiconductor footprint, even as manufacturing and design leadership remain concentrated in Asia and the United States. European policymakers have committed significant funding under initiatives aimed at bolstering domestic chip production, securing supply chains and enhancing technological sovereignty in fields such as automotive, industrial automation and communications. These programmes include incentives for both front-end manufacturing and critical equipment suppliers, with the latter segment seen as an area where Europe already holds a comparative advantage. For investors, the combination of public funding, long lead times for fab construction and high switching costs in tool ecosystems supports the thesis that key European players will remain central to the global industry.
At the same time, Europe’s chip sector continues to face challenges in scaling up to match the sheer capacity of Asian foundries, both in terms of investment volumes and access to specialized talent. The region’s efforts to attract new fabs have produced some high-profile commitments, but execution risks around permitting, energy costs and regulatory complexity persist. Against that backdrop, companies like ASML that occupy upstream positions in the value chain can benefit from global demand regardless of where fabs are physically located, which helps explain why their stock performance can diverge from that of more localized manufacturers. Market participants increasingly view the sector through this lens, differentiating between firms that depend heavily on regional end markets and those that sell into global capital expenditure cycles anchored by a few giant customers.
Earnings quality, cycle risk and investor positioning
While TSMC’s record quarter and the associated rally in European chip names have been celebrated by equity markets, some investors remain wary of extrapolating current trends too far into the future. The semiconductor industry has a long history of boom-bust cycles, with periods of strong pricing and capacity tightness often giving way to overinvestment, inventory corrections and rapid margin compression. In the current cycle, AI accelerator demand and structural shifts in computing workloads have so far offset weakness in areas like consumer electronics and legacy automotive chips, but that balance could change if macro conditions deteriorate or if large cloud customers moderate their capex plans. Earnings quality metrics, such as cash conversion, order visibility and the mix of recurring service revenue versus one-off equipment sales, are therefore under close scrutiny.
In the near term, positioning data and options pricing suggest that many institutional investors had already rebuilt exposure to the sector ahead of TSMC’s release, meaning the latest move partly reflects confirmation of an existing thesis rather than a wholesale change in sentiment. That could limit further upside if subsequent earnings reports from European names fail to match the strength implied by TSMC’s numbers or if management teams issue cautious guidance for 2026. Conversely, any upside surprises on bookings, pricing or policy support could reinforce the current momentum and draw in additional capital from generalist funds seeking growth exposure. For traders, the key question over the coming weeks will be whether the AI-driven order cycle is robust enough to support another leg higher in both earnings and multiples, or whether the latest spike will be followed by consolidation as markets digest the rapid repricing.
Written by Nick Ravenshade for NENC Media Group, original article and analysis.
Sources: Reuters, TechStock², TSMC investor materials, ECB and EU semiconductor policy documents, CNBC, FastCompany, Investing.com
Photo: “CHIPS-TSMC/” by 李 季霖, CC BY-SA 2.0
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