Why TSMC is a 'much better bellwether' for the AI chip trade

Taiwan Semiconductor Manufacturing Company (TSM) leads chip stocks higher after reporting better-than-expected third quarter results and raising its 2025 sales forecast. The earnings beat seemed to reassure investors' confidence in artificial intelligence (AI) after ASML Holding (ASML) trimmed its guidance, sending semiconductor stocks lower.

TECHnalysis Research president and chief analyst Bob O'Donnell joins Seana Smith and Brad Smith on Morning Brief to discuss his view that TSMC’s earnings beat is more indicative of the AI chip market than ASML’s weakness.

O’Donnell tells Yahoo Finance that ASML’s outlook cut “increasingly is going to look like this unusual blip for the semiconductor industry in general.” He explains that issues in the China region and challenges with Intel (INTC) and Samsung (005930.KS) contributed to ASML trimming its guidance, emphasizing that “it's not an overall industry thing.”

“TSMC is [a] much better bellwether of where things are going,” the analyst says. “Bottom line, we saw not only the huge beat and then the raise [but also] the discussion even into next year,” indicating demand strength that is expected to continue being strong. “Clearly, I think the people are having a hard time accepting it, but look, this AI thing is real. The demand is real. It's continuing. And there's a lot of opportunity moving forward.”

He adds, "TSMC is just extraordinarily well-positioned, and that's why there's so much focus on them because what happens there really drives the vast majority, especially, of the high-end semiconductor market that we're seeing for AI.”

To watch more expert insights and analysis on the latest market action, check out more Morning Brief here.

This post was written by Naomi Buchanan.

Video Transcript

Taiwan semiconductor shares, rallying the chip maker lifting its full year outlook after beating earnings expectations in its third quarter.

Thanks to strong demand for its advanced A I microprocessors.

The beat reigniting some enthusiasm in the chip sector after A S MLS disappointing earnings report earlier this week triggered that sell off to discuss what's next for the sector.

We want to bring in Bob o'donnell, he's technos and research president, president and chief analyst, Bob.

It's great to have you back here on Yahoo Finance.

Let's talking about the state of play right now for Chis because the narrative at the start of the week, on the heels of a Smlas MLS print was very much whether or not we're seeing peak demand, the results that we got out this morning.

Has that pretty much put those fears to rest.

I certainly think it has sha I mean, look, I think the A SML think increasingly is going to look like this unusual blip for the semiconductor industry in general.

I mean, you know, a lot of it is tied to China related issues because of how much of the purchases of A SML goods were from China and that's going to go way down.

Plus you had some challenges with Intel and Samsung.

But look, it's not an overall industry thing and Ts MC is much better, bellwether, I think of where things are going.

So, yeah, bottom line is, I think we saw not only the huge beat and then the raise and then the discussion even into next year.

Clearly, I think the people are having a hard time accepting it.

But look, this A I thing is real, the demand is real, it is continuing and there's a lot of opportunity moving forward.

How much chip fabrication entrenchment and wafer fabrication, uh entrenchment does TS MC still have?

And for how long of a lead time do you believe Bob?

Well, I mean, look Brad, they, they have all the, I mean, they have massive amounts of equipment, they're still buying a ton of equipment from a SML by the way, as well as Lamb.

And you know, some of the other folks who, who build the equipment, but the bottom line is the capacity they have there is absolutely enormous and it's gonna take a long time for people like Intel to catch up.

I mean, I think Intel hopefully will see them continue to grow.

That's gonna be important for the worldwide stability of the semiconductor supply chain.

Uh Samsung obviously as well.

And then you've got people like mi and memory and everything else.

But look TS MC is just extraordinarily well positioned and that's why there's so much focus on them because what happens there really drives the vast majority, especially of the high end semiconductor market that we're seeing for A I that we're seeing for the latest smartphones that we're seeing for automotive.

So it's like I said, it truly is the best bellwether.