Why TSMC Stock Tumbled Early Wednesday

Key Points

• ASML just warned of slow or no sales growth in 2026.

• Investors are worried -- logically -- that if semiconductor equipment sales slow, then semiconductor sales could slow as well.

• Long term, the investment thesis for TSMC stock remains intact.

• 10 stocks we like better than Taiwan Semiconductor Manufacturing ›

Dutch semiconductor equipment manufacturer ASML (NASDAQ: ASML) warned investors Wednesday its sales might not grow at all in 2026, sparking worries the artificial intelligence (AI) revolution might not be as inevitable as investors thought -- and sparking a brief sell-off in shares of contract chip manufacturer Taiwan Semiconductor Manufacturing (NYSE: TSM).

Shares of TSMC tumbled more than 4% in early trading before making up most of their losses by noon ET. As of 12:10 p.m. ET, TSMC stock is down only 0.2%.

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Image source: Getty Images.

Semiconductor logic

Why is it down at all? The reasoning goes like this: The AI revolution is supposed to be great news for semiconductor stocks -- for both sellers of chips like TSMC, and sellers of the machines that make the chips, like ASML. But if ASML's sales are slowing (and they are -- Q2 sales were up only 0.6% year over year), then that logically might mean that TSMC's own sales growth could stall as well.

That's the worry that fretted investors this morning.

Is TSMC stock a sell?

And yet, that's not what most analysts think will happen -- at all. According to analysts polled by S&P Global Market Intelligence, total sales growth for TSMC over the next five years should average nearly 20% annually. And between the stock's 22.4-times earnings valuation and its 1.8% dividend yield, that means TSMC is almost perfectly priced for the long-term growth that almost everyone is certain will happen.

Granted, short term hiccups could arise. In ASML's case, growth is probably slowing, at least in part because of sanctions placed on exports of chip-making machinery to China. But there are plenty of other countries in the world that need chips, and both ASML and TSMC can still sell to them.

Long term, I expect TSMC stock is going to do just fine.

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Rich Smith 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.