TSMC Just Delivered Incredible News for ASML Investors

Taiwan Semiconductor Manufacturing (NYSE: TSM) is the world's largest semiconductor foundry, fabricating chips for several customers across multiple industries. This explains why Wall Street eagerly awaits the company's results, as they provide insight into the health of the semiconductor industry.

It is worth noting that semiconductors are considered the new oil, as they form the basic building blocks of the digital economy. The chips that TSMC fabricates power factories, data centers, cars, smartphones, computers, and other applications. Given that all these industries have been embracing artificial intelligence (AI), TSMC has seen outstanding demand for its fabrication services.

So, it was not surprising to see TSMC's latest quarterly report turning out to be better than analysts' expectations. What's more, the company's guidance for 2026 is solid despite production constraints, and this is great news for another semiconductor bellwether -- ASML (NASDAQ: ASML). Let's see why that's the case.

Image source: ASML.

TSMC is going to significantly raise its capex in 2026

TSMC management remarked on the company's latest earnings call that it is "preparing to increase our capacity and stepping up our capex investment to support our customers' future growth." That's not surprising, as the demand for the company's chips is so strong that its factories are running at almost full capacity.

In fact, TSMC's latest process node was sold out before it entered mass production, suggesting that it is supply-constrained. As such, it is easy to see why the company expects its 2026 capital expenditure to land between $52 billion and $56 billion. That points toward a potential increase of 33% over its 2025 capex of $40.9 billion at the midpoint.

Another important point worth noting here is that TSMC anticipates its revenue from sales of AI data center chips to increase at a mid- to high-50% compound annual growth rate (CAGR) through 2029. This is the reason why TSMC aims to allocate 70% to 80% of its 2026 capex toward advanced process technologies.

All this explains why shares of ASML jumped more than 6% following TSMC's quarterly results on Jan. 15. The Dutch semiconductor equipment manufacturer is the only company making machines that help foundries like TSMC to print advanced chips based on small process nodes.

ASML holds a near-monopoly in the market for EUV (extreme ultraviolet) lithography machines, which enable foundries and chipmakers to produce chips that are 7-nanometer (nm) or smaller. These chips, manufactured with small process nodes, pack transistors more closely. As a result, electrons in the integrated circuit move faster, increasing computing power. Also, because electrons need to travel a shorter distance to perform computing tasks, they generate less heat. This results in lower power consumption.

The high power consumption of AI data centers, along with their massive computing requirements, are the reasons why TSMC is now going all out to boost the manufacturing of its 2nm and 3nm nodes. It will have to rely on ASML's machines to do that, which is precisely why the Dutch company is likely to deliver stronger-than-expected growth in 2026.

ASML seems poised to deliver stronger-than-expected growth

ASML stock has shot up an impressive 85% in the past six months. TSMC's latest results have lit a fuse under ASML stock, and it looks like the latter's upcoming results later this month are going to give it another shot in the arm.

That's because ASML could upgrade its 2026 outlook when it releases its report. The company pointed out in July last year that it wasn't sure whether 2026 would be a growth year. However, it confirmed three months later that it does expect revenue to increase this year. Analysts expect ASML's earnings to increase by just 7% in 2026, down from the company's 15% estimated growth for 2025.

But with clients such as TSMC ramping up their capital expenditure in 2026, ASML could easily do better than 7%. So, there is a good chance of ASML delivering better-than-expected growth and guidance when it releases its results this month, and such good news could ensure a solid jump in the company's stock price for the rest of the year.

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.