TSMC & ASML earnings: AI momentum and risks intersect

Middle East conflict adds to chip industry pitfalls

The US-Iran war has thrown another curveball to the global economy, which still grapples with tariff uncertainty after US President Trump imposed a 10% global tariff under alternative statutory authority (following the Supreme Court striking down sweeping IEEPA-based levies) ^[1]. The closure of the Strait of Hormuz has caused transit disruptions and a spike in energy prices, weighing on global growth. The International Monetary Fund (IMF) has lowered its 2026 GDP forecast to 3.1% (from 3.3%) and expects inflation to rise, assuming that the conflict remains "limited in duration and scope". ^[2]

This situation is already pushing inflation expectations higher and dampening consumer sentiment, with US sentiment diving to the lowest on record in April according to the preliminary University of Michigan survey. This may hurt purchases of discretionary items like consumer electronics, which directly affects semiconductor demand.

Furthermore, macroeconomic uncertainty weighs on business sentiment and spending plans, which can squeeze advertising expenditure. A recent WARC analysis suggests the Middle East conflict could shave nearly $100 billion over two years from the marketing industry ^[3]. A pullback in advertising spending could have implications for the proliferation of AI and the infrastructure build-out. Tech giants like Meta and Google, which are powering the AI boom, rely heavily on ad sales. Any slowdown could raise concerns over their massive investments and test their long-term commitment.

At the same time, the spike in oil and gas prices creates hurdles for the energy-intensive chip manufacturing sector, weighing on margins and limiting the appetite for capacity expansions. The sector's intricate supply chains are already facing risks from China's grip on critical minerals as well as tech trade restrictions. ASML already faces export restrictions to China and new US bill proposals could lead to a further tightening ^[4]. The closure of the Strait of Hormuz also affects helium supply - a crucial component in advanced chip-making - as Qatar is the second-largest producer in the world. ^[5]

AI boom drives continued semiconductors growth

Despite macroeconomic uncertainty, the proliferation of AI seems unstoppable - especially as Agentic AI emerges as the next inflection point and tech giants vie for global supremacy. Agents require significantly more inference steps as the industry shifts from training to deployment, driving a massive increase in demand for memory and power. Deloitte identifies inference as the "hot new thing" for 2026, expecting it to account for roughly two-thirds of all AI compute cycles. ^[6]

Given these dynamics, hyperscalers will have a hard time backing down from their mounting spending commitments. Meta Platforms is ramping up its investments by at least 59.2% to $115-135 billion ^[7]. Alphabet is targeting capex of $175-185 billion this year, nearly double from its 2025 allocations ^[8], while Amazon sees a 50% increase ^[9]. Nvidia, the primary enabler of this boom, continues to release new architectures, such as the Rubin platform, on a yearly cycle to meet demand while preparing to restart manufacturing for the Chinese market. ^[10]

The global economy is expected to show resilience and the impact of the Middle East conflict may prove temporary. Moreover, WARC expects the advertising market to grow this year, noting a concentration of spend toward giants like Meta and Google. Omdia also predicts a rise in online advertising, spearheaded by social media platforms such as Instagram, Facebook, YouTube and TikTok. ^[11]

Following strong growth in 2025, the semiconductor market is set to maintain its momentum and approach the $1 trillion threshold according to the World Semiconductor Trade Statistics (WSTS) ^[12]. Gartner is even more optimistic, forecasting an acceleration in growth to 64%, with memory revenue expected to post a threefold increase as supply shortages push prices higher. ^[13]

TSMC and ASML results: AI demand meets industrial friction

Taiwan Semiconductor Manufacturing Company (TSMC), which produces the advanced silicon used in AI systems designed by Nvidia and others, posted another blockbuster report on Thursday. Revenue growth accelerated to 35.1% y/y in the first quarter, margins widened and net income jumped 58.3%. This outperformance of profit growth over sales underscores the importance of TSMC's pricier and most advanced AI chips, with revenue share of its High Performance Computing segment rising to 61%. ^[14]

During the earnings call, CEO C.C. Wei described AI-related demand that continued to "be extremely robust". To meet this demand, management had announced a 2026 capital expenditures target of $52 billion - $56 billion and offered an update on Thursday, that it is now looking towards the high end of this range. Despite the clearly upbeat report, executives did allude to some of the challenges laying ahead due to the Middle East conflict. The CEO spoke of "likely" increases on prices for certain chemicals and gases like helium.

To manufacture these chips, TSMC uses machines produced by ASML - another key gatekeeper of the global semiconductors supply chain. The Dutch company also reported strong results and guidance a day ahead of its client, driven by the AI boom and the rapid data centres expansion. ^[15]

Revenues rose to €8.8 billion in Q1 and profitability improved, with management guiding for 10.2% - 22.4% y/y revenue increase this year and stable gross margins of 51% - 53%. The firm is also directly benefiting from the rise in memory chips demand. The share of sales to South Korea - home of HBM makers Samsung and SK Hynix - rose to 45%, surpassing China. Last month, SK Hynix announced plans to buy around $8 billion worth of equipment from the Dutch maker through 2027. ^[16]

ASML's CEO said the outlook is fuelled by AI-related infrastructure investments, with demand for chips outpacing supply. Additionally, its CFO touted strong demand for its low-NA EUV, expecting a 25% increase in shipments this year.

Nonetheless, ASML faces significant challenges ahead, likely underscored by its decision to stop reporting orders and its move to cut 1,700 jobs. The headwinds include the potential of additional export restrictions to China that could affect the sales outlook, its ability to ramp up production swiftly and risks to the AI proliferation.

A positive horizon: The multi-year AI supercycle

The immediate future for these semiconductor titans remains bright. Investors have clearly signalled their confidence; shares of ASML are up over 30% this year, while TSMC is up more than 20% in New York. This momentum is anchored by the sheer scale of investments by hyperscalers as we move past the initial excitement of chatbots into the era of Agentic deployment, where AI is no longer a luxury but a structural necessity for enterprise efficiency.

However, there are clear risks to this positive outlook, which were evident - even if not prevalent - in this week's reports by these two firms. The economic fallout from the Middle East conflict exacerbates an already uncertain macroeconomic environment. This can test the spending commitments by tech giants while creating hurdles for an energy-intensive sector that can lead to shortages and pressure margins.

Ultimately, the results from TSMC and ASML confirm that the tightrope is holding. While the digital appetite for AI is expanding, the industry's success for the remainder of 2026 will hinge on its ability to navigate a physical world that is becoming increasingly expensive and unpredictable.