Semiconductor Earnings Beats Fail to Lift ASML and Lam Research

The trade analysts recommended, and what happened next

In early October, three chip-supply-chain stocks were among the most popular calls on Wall Street ahead of earnings. TipRanks named ASML, TSMC and Lam Research as Strong Buys before their reports on October 14, 15 and 21. Average price targets implied 32.25% upside for ASML, 19.20% for TSMC and 16.81% for Lam.1 The argument was simple. ASML and Lam make the equipment used to build chips and TSMC manufactures them, so together they offered a clear read on AI spending.1 Expectations were high: consensus called for ASML's earnings per share to nearly double from a year earlier and for Lam's to rise 73%.1

Goldman Sachs made a similar call from a different direction. It argued that a sharp pullback had made the sector easier to buy. Its analysts noted that the Philadelphia Semiconductor Index had fallen 11% over two months while the S&P 500 gained 4%. They described a constructive setup and picked Applied Materials, Seagate and Microchip as tactical buys.23 Goldman also flagged near-term downside risk in Qualcomm, KLA and Western Digital.4

A month later, the results are in. The companies mostly delivered and the stocks mostly did not. That gap between earnings and share prices is the main story of this earnings season, and it reflects more than chip fundamentals.

ASML and Lam beat estimates, and the stocks fell anyway

ASML reported record third-quarter sales of €11.7 billion, a 57.5% gross margin and €5.0 billion in net income. It guided fourth-quarter sales to €14.2–15.2 billion.41 Earnings per share came in well above consensus. Investing.com put the figure at $14.65 against a $12.13 estimate, while TipRanks recorded $14.40 against $12.17.4345 Even so, the shares fell 1.86% in regular trading and another 2.26% after hours.43

The headline profit needs some context. Net income included about €500 million from revaluing ASML's stake in Mistral AI.49 Revenue was slightly below one consensus figure of €11.71 billion.50 ASML has also stopped reporting quarterly bookings. Instead, investors are watching long-term contract liabilities, which jumped from €3.6 billion to €9.3 billion in the quarter.50 The company also said its planned supply for 2027 and 2028 will not fully meet customer demand.46 Read together, the problem was not weak demand. The beat was partly an accounting gain, and the stock was priced for a perfect quarter.

Lam Research had the worst reaction. Revenue of $8.22 billion and adjusted EPS of $2.20 both beat estimates. Operating margin topped 40% for the first time, and free cash flow hit a record $3.24 billion.58 But CFO Doug Bettinger said December-quarter guidance of $8.6 billion "would have been a bit higher" without supply chain constraints, and he expects China's share of revenue to fall meaningfully.53 Estimates of the drop vary with timing, from about 7% premarket to more than 9% intraday. One account has the stock closing down 11.8% at $230 as the semiconductor index fell 6.7%.515254 Applied Materials and ASML fell with it.

Analysts split over that sell-off, and the split is useful. Cantor Fitzgerald kept Lam as a Top Pick with a $500 target and said the market was looking at the wrong number.51 Needham kept its Buy rating but cut its target to $290 from $390.51 Lam's preliminary forecast for more than $200 billion in 2027 wafer fab equipment spending supports the long-term case.57 A record quarter alone did not settle the argument over valuation.

TSMC came closest to a clean result. It earned $4.60 per ADR against $4.46 expected, and CEO C.C. Wei said he saw no sign of an AI slowdown.8 The company also plans to more than double N2 capacity in 2027.8

The pattern is consistent: demand is strong enough that supply is now the main limit. That backs the analysts' fundamental thesis. Their timing looks less sound. Pre-earnings buy lists assume that a beat will lift the stock. After big gains this year, such as Lam's 99% year-to-date rise noted in early October, a small beat was taken as a slowdown.159

Oil is the macro risk hanging over chip stocks

The second reason good news has not lifted chip stocks is outside the sector. Oil is on track for a fourth straight monthly gain. The US-Israeli war on Iran is in its eighth month, and Brent's December contract reached $117.38 on Friday after a tanker attack in the Strait of Hormuz.32 Houthi attacks on Saudi targets, including the Ras Tanura refinery, have kept a risk premium in prices.3538

The reporting agrees on the cause but differs on the outlook. The Wall Street Journal reported that Washington has told Gulf states to prepare for a short, intense campaign against Iran after the November 3 midterms.35 Meanwhile, Vice President JD Vance's outreach to Tehran briefly pushed prices down.31 ING's analysts say the market could shed some of the risk premium if the elections pass without new strikes, even without a deal.37 UBS expects Brent to stay near $110 at year-end, citing low inventories and record freight costs.39 US emergency reserves are near their lowest level since 1982, which leaves less room to cushion further disruption.34

For chip investors, oil matters mainly through interest rates. High energy costs have kept inflation elevated. Traders were pricing at least three more Fed rate hikes by late 2027 even as the Fed held rates this week.26 Bitcoin coverage puts the Fed's current range at 3.75%–4%.12 Dallas Fed President Lorie Logan then called for at least two more hikes.18 Higher rates hurt richly valued growth stocks most. They also raise borrowing costs for the debt-funded AI build-out, a concern Reuters said was already weighing on the sector.24 One energy strategist argued that WTI falling toward $70 could strengthen the case for eventual rate cuts.31 With US crude above $100, that looks distant.

Bitcoin falls with other risk assets

Crypto has moved with other risky assets this month and offered no shelter. Bitcoin fell to a five-week low after about $1.29 billion in leveraged long positions were liquidated. It is now about 38.7% below its all-time high of $126,080.14 A $6.3 billion hack at Binance, the largest crypto theft on record, made things worse. Bitcoin fell 4.1% to around $77,446 and BNB dropped 6%.16 Some technical analysts argue the hack cost only about 2%, with the larger damage coming from a three-week decline from the $86,000 highs.13 That view fits the broader evidence: a hawkish Fed, expensive oil and weak tech sentiment were already hurting crypto before the breach.

The link to chips was clear on October 30. Bitcoin fell more than 4% the same morning that weak results from Amazon, Intel and Alphabet hit chip and AI stocks.2023 Arm dropped 9.6% and AMD 8.4% before the open. ASML lost 5%, and Micron and Western Digital fell 5% and 7%.23 A day earlier, Meta's first negative free cash flow since 2012 had led a tech-driven sell-off while Brent touched $113.36 One factor is behind all of these moves: doubt about whether AI spending will pay off, made sharper by expensive energy and rising rates.

The late-October rebound did not last

The sector did have a rally late in the month. The SOX index gained about 7% over three days to October 27, helped by Anthropic's IPO filing, Broadcom's reported $63 billion Anthropic financing deal and AMD's expanded partnership with Meta.25 SK Hynix then reported a more than sevenfold jump in quarterly profit, and Micron rose almost 5%.26 Analysts expected S&P 500 earnings growth of 31.8% for the third quarter.26 The rally faded within days, which suggests buying was driven by headlines rather than conviction.

Goldman's storage call shows how quickly specific picks can go wrong. Seagate fell after its first-quarter report even though it beat expectations, while Western Digital, Goldman's suggested underperformer, rose that day.2224

What to watch next week

Analysts appear to be right about demand. ASML and Lam both say supply, not orders, is the limit, and TSMC sees no slowdown.46538 The pre-earnings buy lists, however, left out three things: valuations that allow little room for error, an oil-driven rate outlook, and a market questioning how AI spending will pay off.

The coming week brings several tests together. Apple and Palantir report on November 2, AMD reports on November 3 alongside the midterm elections, and Arm reports later in the week.23 Oil may move sharply in either direction depending on whether Washington follows through on strikes against Iran.3237 Our read is that strong demand will keep chip earnings solid, but share prices are likely to follow oil and rate expectations until the post-election Iran situation becomes clearer. Investors buying on the dip are betting that the geopolitical risk will ease. Strong fundamentals alone have not been enough to lift these stocks this season.