Chips Still Up for TSMC and ASML

How much revenue is needed to justify a $1 trillion valuation? How much extinction-level risk is too much? And what happens if the frontier AI labs decide to pace themselves while open models nip at their heels?

Such existential quandaries bedevil the AI industry’s many stakeholders in the lead up to Anthropic and OpenAI’s expected mega IPOs, especially in light of a truth nuke last Thursday that the latter startup’s revenue was growing slower than previously thought. That’s the bad news backdrop for ASML and TSMC as they prepare for their next earnings reports on Wednesday and Thursday this week, respectively. The good news? It’s boom times for the hardware kings.

What a Difference $20 Billion Makes

Last week, the Financial Times reported that OpenAI had begun telling investors that its annualized revenue came in at around $50 billion in September (the company later confirmed the figure to The New York Times). That’d be all well and good, had it not been previously reported that the company was telling investors that its annualized revenue was closer to $70 billion. The $20 billion chasm from a preeminent software seller sent shockwaves across the entire AI trade. Shares of Oracle dropped more than 6% on Thursday. Nvidia-backed cloud computing startup Firmus placed its IPO plans on hold. The Philadelphia Semiconductor Index, for instance, is now down 7% since last Wednesday’s close; TSMC and ASML are down 5.5% and 3.5% since then, respectively.

On the other hand, there’s no letup in demand for compute and the chips behind it — and the machines that make such chips, and the machines that make those machines. And both companies have already shared tidbits that inspire continued confidence:

• TSMC gave an all-important teaser for its full earnings report, announcing on Thursday that its third-quarter revenue came in at a gargantuan $46.7 billion. That’s another record for the chipmaker, as well as a 50% year-over-year increase and above most consensus expectations for the period; Thursday’s call will now reveal if the company can notch its sixth straight quarter of record profits to go along with its revenue beat.
• ASML, meanwhile, is reportedly planning a 10% price hike for some component parts of its lithography machines at the start of next year; in July, CFO Roger Dassen told analysts the company has room to flex its pricing power.

Token Tumble: In another sign of a growing divide between AI hardware’s relative resilience and AI software’s relative softness, the cost of LLM tokens has roughly halved since May, while the cost of compute rental prices continues to climb, according to market intelligence firm Silicon Data. Translation: open-weight AI is undercutting the model market, while GPU demand is still outstripping supply.