Chip giants crush earnings while hardware stocks panic — buy the AI dip on TSMC and ASML

Verdict: Great thesis, but the trade hasn't armed — wait for the dip

The idea's core claim — that record chip earnings are being sold off in a sector-wide panic — is well supported: per Reuters, TSMC's Q2 profit jumped 77% to a record, and per Yahoo Finance, ASML raised its 2026 guidance for a second time, while the filed numbers show TSM revenue up 33.9% and ASML up 15.6% with elite margins (TSM's operating margin near 45.6% sits in the 98th percentile of IT peers). The strongest point against is that there is nothing to buy today: both names closed above their 100-day averages (TSM at $435.56 versus $417.31; ASML at $1,729.52 versus $1,683.73) and the required two-day drop is roughly 4.6 and 3.9 points away — the setup is entirely waiting on a selloff that may never come. The completed backtest is encouraging but imperfect: 32.5% total return over five years at a 50.6% win rate and a 17.4% worst drawdown, improving to 44.1% with a 62.2% win rate in the trailing 24 months — though the full-window record is a coin flip and exit fills were approximated on daily bars. We also flag that no robust parameter setup was established — the walk-forward analysis returned no recommendation — so the fixed 2.3% stop and 4.6% target aren't validated by sensitivity testing. A TSM-only reassessment trigger: a close below its $417.31 100-day average would kill the entry condition outright. Verdict: the dip-buy logic is sound and the fundamentals back it, but discipline means waiting for the trigger, not chasing strength.

Trade now: wait for the dip — no entry is live yet

Nothing to buy today. The strategy wants a sharp two-day dip — a two-day rate of change below -3% — while price stays above the 100-day moving average. The trend condition is satisfied on both names: TSM closed at $435.56, about $18.25 above its 100-day average of $417.31, and ASML closed at $1,729.52, about $45.79 above its $1,683.73 average. What's missing is the dip. TSM's two-day change is +1.55% (it needs to fall roughly 4.6 points below zero) and ASML's is +0.85% (roughly 3.9 points away). Both entry conditions are flagged as far from triggering. Practically, waiting means this: for TSM, a two-day slide from $435.56 toward the low $420s would put the entry in range — conveniently just above the $419.60 first support and the $417.31 trend line. For ASML, a similar pullback from $1,729.52 toward the $1,700 area — near the $1,717 and $1,702 supports — would do the same. In both cases price must stay above the 100-day average at the close for the entry to arm. Risk is defined in the rules, not improvised. Once in, positions take profit at +4.6% or at the first resistance level — $436.04 on TSM and $1,772.15 on ASML — and stop out at -2.3% or at the second support level ($410 on TSM, $1,701.70 on ASML), with a hard 15-day time stop. That gives roughly a 2-to-1 reward-to-risk profile per position. Position sizing is capped at 25% per name using fixed-risk sizing, so no single signal can dominate the book. The completed backtest supports the discipline of waiting rather than chasing: over five years the pair strategy produced a 32.5% return across 77 trades with a 50.6% win rate and a 17.4% worst drawdown, and the last 24 months were stronger still — 44.1% return, 62.2% win rate, and only a 4.7% drawdown. That record was earned by taking the dip entries, not buying strength. If no dip arrives, the correct action is no action.

The fundamentals say the panic is mispriced

The idea argues that chip earnings are crushing expectations while the sector sells off in panic, creating a discount on the real AI winners — and the most recent fundamentals back that framing. Per Reuters, TSMC's Q2 profit jumped 77% to a record, far ahead of expectations, and per Yahoo Finance ASML raised its 2026 guidance for a second time while beating Q2 earnings. Those headlines sit on top of full-year numbers that are hard to call weak: TSM grew FY2024 revenue 33.9% to $2.89T with net income up 36.0% and free cash flow up 197.9% to $870.2B, while ASML grew FY2025 revenue 15.6% to $32.7B with net income up 26.9% and free cash flow up 21.8% to $11.1B. Quality metrics reinforce the demand story rather than merely the growth story. TSM's operating margin of 45.7% sits in the 98th percentile of 854 Information Technology peers, and its 56.1% gross margin, 27.3% return on equity, and near-zero debt-to-equity of 0.007 define a fortress balance sheet funding a massive capex cycle. ASML, the critical equipment supplier, posts a 52.8% gross margin in the 86th percentile of Industrials, a 49.0% return on equity, and cut its debt-to-equity 30.6% year over year to 0.138 — it ended FY2025 with $12.9B of cash against $2.7B of long-term debt. The strategy's completed backtests also line up with the buy-the-dip thesis. Over the full 60-month evaluation window the rules produced 77 trades with a 32.5% total return, and the results improved markedly as the AI cycle matured: the trailing 24-month window delivered a 44.1% return across 45 trades at a 62.2% win rate, and the trailing 12 months delivered 25.9% across 28 trades at a 64.3% win rate. In other words, the dip-buying entry has been most effective precisely during the period when the earnings strength described in the news was driving recoveries after sharp sector-wide drops. The mechanics of the rule set fit the thesis as written: enter on a 3%-or-worse two-day drop while the 50-day trend is intact or price holds above the 100-day average, then…

Scores

• Conviction score breakdown: 64
• Thesis support: 82
• Trade readiness: 35
• Risk quality: 58
• Backtest evidence: 62
• Fundamentals trend: 85

Watch items

• TSM — ROC (2)
• TSM — Close vs SMA (100)
• TSM — First resistance level
• ASML — ROC (2)
• ASML — Close vs SMA (100)
• ASML — First resistance level
• TSM — Insider open-market activity (13F cycle)
• ASML — Next dividend event