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This was not supposed to happen. The ongoing rush for AI GPUs was supposed to keep investors focused on ASML's soaring order book for its cutting-edge chip manufacturing machines, and TSMC in the limelight as the largest contract chip manufacturer in the world. Yet, geopolitics has a uniquely disruptive way of upending even the most pristine of bullish cases.
ASML, TSMC Earnings Overshadowed By Evolving Geopolitics
$ASML Q2 Earnings Highlights:
🔹 GAAP EPS: €4.01 (Est. €3.54) 🟢
🔹 Revenue: €6.24B (Est. €6.03B) 🟢
🔸 Backlog: €38.9B, up 11% YoY
🔸 Net Bookings: €5.6B, up 24% YoY
🔸 EUV Orders: €2.5B, up 281% YoYGuidance:
🔹 Q3 Revenue: €6.7B-€7.3B (Est. €7.5B) 🔴
🔹 Q3 Gross…— Wall St Engine (@wallstengine) July 17, 2024
TSMC is scheduled to provide its quarterly earnings update tomorrow. Meanwhile, ASML has just delivered a pristine financial result for the second quarter of 2024, handily beating expectations for its top-line and bottom-line metrics. The only chink in the armor: a relatively soft guidance for the third quarter of 2024.
Critically, China still accounts for 41 percent of ASML's total sales. While US sanctions and export restrictions prevent ASML from selling its cutting-edge EUV and High-NA EUV lithography machines to Chinese tech companies, the current scope of restrictions do not extend to the older Deep Ultraviolet (DUV) lithography machines.
This brings us to the crux of the matter. TSMC and ASML shares are tanking today primarily due to the bipartisan geopolitical headwinds emanating out of the US. First, Trump has indicated that he would only offer protection to Taiwan as the President of the US if the Asian island nation pays the US for that safety net.
On the heels of this development, we now have reports that suggest the Biden administration is mulling the imposition of strictest possible chip-related sanctions on China by leveraging the Foreign Direct Product Rule (FDPR), which gives the Department of Commerce's Bureau of Industry and Security the authority to regulate the re-export of items that incorporate US intellectual property.
Specifically, the Biden administration is considering banning ASML and Tokyo Electron from servicing equipment already sold to China. These restrictions will also preclude any commercial avenue that might still exist between TSMC and Chinese entities.
This article from The Information is much more important than the ASML/Bloomberg one from earlier this morning.
According to The Information, Chinese companies are circumventing US export controls and accessing Nvidia’s high-end GPUs by renting them from American cloud providers…
— Vital Knowledge Media (@knowledge_vital) July 17, 2024
Interestingly, these developments come as a separate report has identified export restrictions-evading culprits closer to home. Specifically, The Information is now reporting that the cloud units of Google and Microsoft are currently playing an important role in helping Chinese companies circumvent US restrictions.
It would be interesting to see TSMC's quarterly financial earnings tomorrow. As we recently reported, the largest contract chip manufacturer in the world has slashed prices for its 7nm node-based process by around 10 percent to spur demand. Concurrently, TSMC has negotiated a substantial price increase for its in-demand 3nm-based node process.
TSMC shares are down around 7 percent right now while ASML shares are currently down around 10 percent.
Note: The post has been updated with current stock prices.
About the author: Writing is my one incontrovertible passion. Over the past six years, he has authored over 2,200 distinct articles on financial and tech-related topics, spanning nearly 1 million words. And he has been a member of Wcctech mobile team since 2025. As an alumnus of the University of Toronto, Rotman Commerce Program, I bring nuance, in-depth knowledge, and a unique perspective to every topic that I cover. When I'm not writing, I'm traveling the world, exploring hidden confectionaries and restaurants as an aspiring food connoisseur.
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