Chip equipment makers crush earnings on AI demand — long TSMC and ASML

Verdict: strong fundamentals, but the entry hasn't fired — wait

The fundamental backdrop here is genuinely strong. ASML grew fiscal 2025 revenue 15.6% to $32.7B with net income up 26.9% and free cash flow in the 99.9th sector percentile, while TSM's fiscal 2024 shows revenue up 33.9% with a 45.7% operating margin and net insider open-market buying of roughly $370K across 20 holders at the June 30, 2026 report date. Per CNBC and Yahoo Finance, both companies just beat on earnings, with TSMC's Q2 profit up over 77% and ASML raising its 2026 outlook. The rule set has a completed 60-month backtest: 61.1% total return over 62 trades, a 43.5% win rate, and a 17.5% maximum drawdown, plus 35.5% over the last 24 months — but exits were filled on daily trigger bars, so the win rate and drawdown are coarse, and the parameter-sensitivity run exceeded its time budget, so no robust nearby-parameter setup was established and the rules are used exactly as written. The strongest case against is trade readiness: right now ASML's 14-day ADX reads 19.0, about one point below the required 20, and TSM sits roughly $16.53 above its 50-day EMA at $419.03, so no entry condition is complete today. Wait is the honest verdict — the fundamentals justify patience, not action. What flips it is simple: both tickers satisfying all four conditions on the same daily bar (ASML's ADX through 20 with price under its EMA, TSM pulling back through $419.03), at which point the mechanical plan of a 2.3% stop against a 4.6% take-profit takes over.

Trade now — close, but both tickers must align

This is a waiting setup, not an actionable one today. The strategy wants both names lined up at once: price below the 50-day EMA, the 14-day ADX above 20, and the 14-day RSI above 45 — on each ticker. As of the latest daily bar, ASML sits at $1,729.52, essentially on top of its 50-day EMA at $1,729.82 and just $0.30 shy of the price condition, but its ADX reads 19.0, about one point below the 20 threshold. TSM closed at $435.56 with its EMA at $419.03, so the price condition is roughly $16.53 away. The RSI conditions are already met on both names (ASML at 50.2, TSM at 65.5). Wait means: do nothing until both tickers satisfy all four conditions on the same trigger. Concretely, that requires ASML's ADX to push above 20 with its price holding under the 50-day EMA, plus TSM pulling back through $419.03. Once an entry triggers, the risk plan is mechanical: a 2.3% stop loss against a 4.6% take profit — roughly 2:1 reward-to-risk — with position size capped at 25% of the book and risk sized at about 2.3% per position. The evidence base is the completed backtest: over 60 months on daily bars, the pair strategy produced a 61.1% total return across 62 trades with a 43.5% win rate and a 17.5% maximum drawdown. One caveat from that evaluation: exits were filled on daily trigger bars rather than intrabar data, so treat the drawdown and win rate as coarse. The near windows are consistent — 35.5% over 24 months (54.2% win rate) and 12.9% over the last 12 months. No robust parameter setup was established because the sensitivity evaluation ran out of its time budget, so the published rules are used exactly as written. One structural point in the thesis's favor: the fundamentals are improving, not decaying. ASML grew fiscal 2025 revenue 15.6% to $32.7B with net margin up to 29.4%, and TSM's latest annual report shows revenue up 33.9% with net income of about NTD 1.16T. Insider filings on TSM show net open-market buying of roughly $370K across 20 holders through the June 30 period — supportive color, not an entry signal.

The AI supplier squeeze is showing up in the actual numbers

The thesis says ASML and TSMC are the physical backbone of the AI buildout, and the latest news flow supports that directly. Per CNBC's July 16 report, TSMC's second-quarter profit jumped more than 77%, beating estimates, and per Yahoo Finance, ASML shares rose after a Q2 earnings beat paired with a raised 2026 outlook. The Micron article from the same week argues AI memory demand is still in the early innings — precisely the leading-indicator logic the idea relies on, since these two suppliers sit upstream of nearly every chip customer. The filings make the demand real rather than rhetorical. ASML's fiscal 2025 shows revenue up 15.6% to $32.7B, net income up 26.9% to $9.6B, net margin expanding to 29.4%, and return on equity of 49.0% — all while cutting debt-to-equity 30.6% to 0.14 and shrinking shares outstanding by 2.0%. Free cash flow rose 21.8% to $11.1B, the 99.9th percentile of its sector. TSMC's FY2024 mirrors the pattern at scale: revenue up 33.9%, net income up 36.0%, a 45.7% operating margin in the 98th percentile of its sector, and free cash flow nearly tripling to $870.2B. These companies are converting AI demand into record profitability today, not promising it tomorrow. The strategy itself has completed backtest evidence, not just a narrative. Over the full 60-month window the long ASML/TSM rule set traded 62 times and returned 61.1%, with a 43.5% win rate and a 17.5% maximum drawdown. The recent windows hold up: 35.5% over 24 months on 24 trades with a 54.2% win rate and just 6.6% max drawdown, and 12.9% over 12 months on 9 trades. A sub-50% win rate still compounding to 61% means…

Scores

• Conviction score breakdown: 62
• Thesis support: 78
• Trade readiness: 35
• Risk quality: 55
• Backtest evidence: 62
• Fundamentals trend: 80

Watch items

• ASML — ADX (14)
• ASML — Price vs 50-day EMA
• ASML — RSI (14)
• TSM — Price vs 50-day EMA
• TSM — Price vs resistance
• TSM — RSI (14)