Semiconductor Stocks Slide Despite Record TSMC, ASML Earnings

Strong earnings, falling chip stocks

The week to October 16 was a hard one for chip investors. TSMC and ASML both reported very strong quarters, and their shares fell anyway, along with most of the sector. By Friday morning the PHLX Semiconductor Index had dropped seven sessions in a row and was more than 10% below its recent high20. Memory names led the decline: Sandisk, Micron and Western Digital each fell at least 1.75% in early trading that day, and AMD lost 1.8%20.

The market is no longer asking whether AI demand is real. The quarterly numbers settle that. It is asking what that demand will cost to supply, who will pay for it, and what interest rates will be when the bills arrive. Those questions are linked to two other stories this week: Brent crude stuck above $100 because of fighting around the Strait of Hormuz, and bitcoin trading in a narrow range under $85,000. All three point to a market where energy, inflation and borrowing costs matter more right now than earnings beats.

TSMC and ASML beat estimates and still fell

TSMC's third quarter set a record for net profit for the sixth quarter in a row. Net income was NT$763.1 billion, up 68.7% from a year earlier, and both revenue and profit beat LSEG's weighted estimates17. Operating margin was 58.7%, above the top of the company's own 58% guidance, which shows how much pricing power it has17. Fourth-quarter revenue guidance was $52.3 billion to $54.3 billion, a 58% year-over-year jump at the midpoint17.

Reports differ slightly on the revenue figure. CNBC converted it from Taiwan dollars at roughly $46.36 billion17, while other accounts use the company's dollar figure of $46.72 billion, up 41.2%36. One Motley Fool article gave 51% growth, which does not match the 41% reported elsewhere39. The 41% figure is the better-supported one. The gap does not change the main point: by any of these measures the quarter was excellent.

The stock still dropped. TSMC's U.S. shares closed October 16 at $412.61, down 2.28%. One explanation is the CEO's comment that the company will be "prudent" in planning for 2027, because higher chip prices are hurting price-sensitive products such as phones39. Spending is another worry. TSMC expects to spend $60 billion to $64 billion this year13, and it said capital expenditure for 2026–2028 will be well above the previous three years17.

ASML's report the day before followed the same pattern. Sales were €11.7 billion, gross margin was 57.5%, and net income was close to €5 billion13. Free cash flow was €11.4 billion, compared with €0.2 billion a year earlier, and about €4.1 billion went to share buybacks39. The company also said its planned supply for 2027 and 2028 would not fully meet customer demand34. Before the report, options pricing implied a move of about 4.6% in either direction37. Whatever gain the shares made early on was erased as the wider chip selloff resumed13.

Investors are worried about capacity, not demand

The clearest explanation comes from a Forbes column arguing that these results now raise a supply question, not a demand question. Micron's adjusted quarterly earnings, ASML's near-€5 billion profit and TSMC's 69% profit increase all show how much money scarcity is making. That gives every rival, supplier and government a reason to build more capacity13. Micron's 87% gross margin and its guidance for about $61.5 billion in revenue look less like a high point and more like an invitation to competitors13. The column notes that at Micron's projected revenue, each percentage point of margin is worth more than $600 million in quarterly gross profit13.

Other reporting points the same way. Before the earnings, the iShares Semiconductor ETF had already fallen six sessions in a row. Investors were questioning whether AI infrastructure spending would pay off, and rising bond yields and financing costs added to the pressure33. Broadcom CEO Hock Tan's comments about possible capital limits on the AI buildout added to the unease. So did reports that Chinese memory maker CXMT is closing the technology gap, which weighed on memory stocks35.

This follows a large rally. The semiconductor ETF gained 11% in September and another 3.6% in the first two days of October, and it was trading at about 43 times earnings14. Micron's shares had risen more than 270% this year as of its report14. After gains like that, a careful sentence about 2027 is enough to move the stock.

Not everyone sees the selloff as a warning. One Motley Fool contributor argues that TSMC, at about 30 times earnings and with roughly 73% of the third-party foundry market, is one of the safer AI stocks to hold during a pullback. Some smaller companies are still beating expectations. Camtek pre-announced record third-quarter revenue above guidance and gave record fourth-quarter guidance12, and Semtech rose 4% after raising its own forecast20. Our reading: business conditions are strong and stock prices are being repriced. Those are separate things, and next quarter will test which one gives way.

Oil is feeding the rate problem

Treasury yields hit chip stocks hard, and oil is a big reason yields are high. Brent spent the week mostly around $1051, then jumped on Friday. One report put it at $109.91 in the afternoon, up 3.77%2. The two figures describe different times of day, not conflicting facts. Before Friday's jump, Brent had gained only 0.44% for the week while WTI rose 5.81%8.

Attacks on shipping are the main cause. Ship-tracker Kpler said Hormuz traffic averaged 11.62 million barrels a day in the week to October 13, about 68% of the normal 17.15 million6. At least nine tankers and cargo ships were attacked in the strait over the past week2. Houthi drone strikes damaged Saudi Aramco's Dhahran headquarters1. Iran says it is increasing attacks in response to the U.S. blockade of its ports and new sanctions8.

Attempts to bring prices down have had little effect. The IEA agreed to release the last 100 million barrels of its March emergency program, including 20 million barrels of diesel3. The Trump administration is considering lifting sanctions on some shadow-fleet tankers to bring down record freight rates6. Analysts at ING say that fully removing the risk premium would require some kind of agreement between the U.S. and Iran4. Haitong Futures said traders were dissatisfied with the measures announced so far8.

The effect on markets runs through inflation. In the U.S., September consumer prices rose 3.7% from a year earlier, above expectations25. The CPI and PPI reports were both hotter than forecast, which hurt risk appetite28. Jim Cramer listed oil and a possible 6% long-bond yield, driven partly by borrowing for data centers, as the main risks to the market31. For chipmakers with large investment plans, higher energy costs mean higher yields, and higher yields reduce what future capacity is worth today.

Bitcoin tracks the same pressures

Bitcoin had a similar week. It briefly fell below $80,000 on October 15–16 and then recovered to about $81,500–$81,70030. On Friday, the day after the CPI report, it was around $81,541, down 1.6%26. Technical readings were mixed. Price was below the 20-day average near $83,478, but the weekly RSI of 56.75 stayed above neutral21. Liquidation clusters at $84,400–$84,800 suggest that is where a short squeeze could start21.

Fund flows matter more than the charts. U.S. spot bitcoin ETFs saw $681 million of outflows in the week to October 1127. Economic Times coverage over recent weeks repeatedly links bitcoin's moves to oil prices, Treasury yields and AI-stock volatility29. Figures for bitcoin's market dominance differ by provider, from about 59.5%30 to 61.83%22. That difference comes from methodology and does not change the picture.

The broader pattern was rotation. In the week to October 16, technology ETFs fell 7.70% while consumer staples and energy led the market. The equal-weight S&P 500 rose even as the large-cap indexes fell36. The 10-year Treasury yield dropped 15 basis points to 5.09%, which helps, but the VIX rose more than five points to almost 2036.

What comes next

More chip earnings are coming. Lam Research reports on October 21 and Intel on about October 22, with KLA and SK Hynix around October 28 and Samsung around October 2911. The Fed meets October 27–2836. Our view is that Lam's outlook for 2026–2027 wafer equipment spending, and its China exposure, will matter more than its headline numbers. Oil may matter even more. If Hormuz traffic recovers and Brent falls back below $100, yield pressure would ease and that would help both chip stocks and bitcoin. If attacks continue, strong earnings are likely to keep failing to lift share prices.