Shares of ASML (ASML 3.30%) were up by 5% as of noon ET Thursday, according to data provided by S&P Global Market Intelligence.
ASML is the leading provider of lithography solutions to the semiconductor industry, and its upward momentum appeared to be a reaction to the promising guidance provided by its largest customer, Taiwan Semiconductor Manufacturing (TSM 3.86%), which reported fourth-quarter earnings Thursday morning.
ASML’s success is tied to TSMC
Controlling most of the market for deep-ultraviolet (DUV) lithography equipment and holding a virtual monopoly in the bleeding-edge technology of extreme-ultraviolet (EUV) lithography, ASML is essential to TSMC’s chipmaking operations. Likewise, as the world’s largest semiconductor foundry, TSMC’s immense significance to its industry makes it ASML’s most valuable customer.
As such, as one company goes, so goes the other (usually).
So, when TSMC reported earnings that surpassed analysts’ expectations, it was an encouraging sign for ASML as well. However, the really noteworthy nugget for ASML investors came in TSMC’s earnings call, when the company projected that its capital expenditures would rise from $30 billion in 2024 to around $40 billion in 2025.
These capital expenditures include new equipment purchases that will keep TSMC’s production capabilities best in class. The planned boost in capex signals ample opportunities ahead, whether they be in the form of 5G, artificial intelligence (AI), or high-performance computing, which the company identified as clear megatrends.
Though ASML won’t receive all of TSMC’s capex spending, it will get a decent chunk of it. More importantly, however, TSMC’s bullish outlook reaffirms that ASML’s state-of-the-art EUV equipment should only become more critical to the chipmaker over the coming years.
With TSMC projecting sales of AI accelerators (which are used to power machine learning and deep learning systems) to double in 2025 — after tripling in 2024 — ASML could be poised to rebound after an up-and-down year.
