Both ASML and Taiwan Semiconductor are giants in the semiconductor industry. Why did ASML plummet while Taiwan Semiconductor surged?

The chip industry experienced a turbulent week of "ice and fire", with ASML's performance collapse dragging down semiconductor stocks, followed by Taiwan Semiconductor's dazzling financial report, reigniting the market's optimistic sentiment towards AI demand.

The internal differentiation of the chip industry is reflected behind the scenes of the contrasting situations. Analysis suggests that apart from Taiwan Semiconductor, ASML's customers such as Intel and Samsung are facing their own difficulties, while Taiwan Semiconductor's customers like NVIDIA still have strong demand, making Taiwan Semiconductor's performance a better indicator of AI demand.

In short, the AI-driven chip boom is far from over, but only the technological leaders can emerge as the ultimate winners.

ASML's "Flash Crash", Taiwan Semiconductor's "Explosion"

The direct trigger for the stock price volatility was the performance of two giants.

On Tuesday, Dutch lithography giant ASML "accidentally" released its third-quarter report ahead of schedule, revealing that the company's backlog orders fell significantly below expectations, hitting a low point in nearly three years and pouring cold water on the market.

ASML's stock plummeted by 17% on that day, marking the largest single-day drop since 1998, and dragging down chip stocks collectively, resulting in a total market value loss of over $420 billion for US-listed chip manufacturers and high market value chip stocks in Asia.

With the giants stumbling, the market began to question whether AI demand is still viable. Fortunately, Taiwan Semiconductor's financial report released just a day later did not disappoint investors.

The third-quarter report of Taiwan Semiconductor released on Thursday exceeded expectations across the board, with a 39.0% year-on-year revenue growth reaching a historical high, a significant 54% increase in net profit year-on-year, and a historical high gross profit margin, along with an upward revision of performance guidance.

In overnight trading, Taiwan Semiconductor surged by over 12% at one point, surpassing a trillion-dollar market value, with the closing gain falling back to 9.79%.

Taiwan Semiconductor is a Better Indicator of AI Demand

As both upstream and downstream giants in the chip industry, the significant performance gap between ASML and Taiwan Semiconductor requires a closer look at their customers.

ASML sells large lithography machines to chip manufacturers including Taiwan Semiconductor, Samsung, and Intel. However, apart from Taiwan Semiconductor, Intel and Samsung are facing their own challenges.

Once a leader in technology trends, Intel, due to strategic mistakes, missed opportunities in emerging areas such as mobile internet and AI, and is being left behind by the times, having outsourced orders for processes below 3 nanometers to Taiwan Semiconductor.

Samsung Electronics also missed out on the AI boom, failing to seize opportunities in cutting-edge process chips, HBM, and other high-end storage chips, significantly lagging behind Taiwan Semiconductor in market share for foundry services. This month, Samsung Electronics issued a rare apology statement due to operating profit falling below market expectations.

Only Taiwan Semiconductor has been sprinting ahead in advanced processes. The latest financial report shows that the revenue share of Taiwan Semiconductor's advanced processes has further increased, with 3-nanometer and 5-nanometer processes contributing 52% of third-quarter revenue.

In contrast, Taiwan Semiconductor's customers include NVIDIA, leading the AI chip trend, as well as AMD and Qualcomm, whose demand remains strong. **Analysis suggests that Taiwan Semiconductor is the better indicator of measuring AI demand Morningstar stock analyst Javier Correonero told Business Insider: "From a technical perspective, Intel and Samsung are lagging behind Taiwan Semiconductor. This is just a customer-specific issue, as Intel and Samsung are unable to ramp up new nodes correctly, but this is not related to demand."

During Thursday's conference call, Taiwan Semiconductor CEO Wei Zhejia stated that the demand for AI is real and denied that artificial intelligence is in a bubble.

AvaTrade Chief Market Analyst Kate Leaman said: "In the short to medium term, applications of artificial intelligence, data centers, and advanced chips will continue to drive strong demand... Therefore, while ASML may experience temporary slowdowns, companies like Taiwan Semiconductor may continue to deliver strong performance in these high-growth areas."

As other chip companies such as Qualcomm and Intel announce their earnings in the coming weeks, the market will present a clearer picture.