Chip giants TSMC and ASML kicking off earnings season — position for a sector-wide rally

Verdict: strong companies, but this entry never fires — wait, don't buy the dip ahead of TSMC earnings

The thesis is fundamentally sound: TSM grew revenue 33.9% with a 45.7% operating margin, ASML lifted operating margin 2.7 points to 34.6% and return on equity 8 points to 49.0%, and both rank in the 99.9th percentile for free cash flow — these are companies inflecting upward into earnings, per the Investor's Business Daily preview of July 10, 2026. But the strategy itself is a watch-list setup, not an active signal: across five years of daily bars, the entry rules produced zero trades, and the author's own optimization rationale concedes the compiled conditions are likely too strict. Right now the entry is nowhere near arming — SMH's trend strength sits at 3.6 against a required 20, and price at $570.45 is pinned between first support at $568.78 and resistance at $573.21 rather than staging the required support test. The risk rails are also uncomfortable: a 2.4% stop against a 4.8% target means one bad earnings gap clips the position at half the intended win. No robust nearby-parameter setup was established either, since the sensitivity evaluation timed out. The disciplined call is to wait for the entry conditions to align or the optimization to resolve — not to take a discretionary early position into a date-bound catalyst.

Trade now

This is a waiting setup, not an active trade. The plan buys SMH (with ASML and TSM as trigger symbols) two days before TSMC earnings, holds five days, and exits on a 4% trailing stop or at the end of the window. Right now the entry needs all of the following: price above the Supertrend, price above VWAP, trend strength above 20, a dip that tags first support but closes back above it, and daily volatility above 0.5. On live bars the trend conditions look constructive — SMH closed at $570.45, comfortably above its Supertrend at $527.31 — but the trigger is not complete. The clearest blocker is trend strength. It reads 3.6 on SMH, 9.3 on TSM, and 17.1 on ASML — every one below the 20 threshold, with TSM about 11 points short and SMH about 16 points short. A low touching first support while the close holds above it is also not in place: SMH sits at $570.45 against first support at $568.78 and first resistance at $573.21, so price is pinned in a tight range rather than staging a support test. The volatility floor cannot be confirmed from live data, so that condition remains unverified. 'Wait' here means something concrete: do nothing until a session prints a low at or below first support with a close above it, while trend strength climbs above 20 on the triggering symbol. If the entry fires, the risk framework is already defined — a 2.4% position stop, a 4.8% take profit, a hard stop below second support, and a target at first resistance. On SMH that means roughly $557 on the percentage stop and $573.21 at the resistance target; the structural stop sits at $560, the second support shelf. One caveat for planning: no robust parameter setup was established — the sensitivity work timed out before producing a recommendation, and the author opted for a bounded expanded-scope optimization that preserves the thesis while searching for evaluable history. Until that resolves and the entry conditions align, the disciplined action is patience into the TSMC and ASML report dates rather than a discretionary early position.

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The thesis — that TSMC and ASML kick off a sector-wide read on AI hardware demand, per the Investor's Business Daily earnings preview of July 10, 2026 — rests on companies whose reported numbers actually justify the attention. TSM's latest full-year results (fiscal year ended December 31, 2024) show revenue of $2.89 trillion in New Taiwan dollars, up 33.9% year over year, with net margin at 40.0% and operating margin at 45.7% — a 3.1-point operating margin improvement over the prior year. ASML's fiscal 2025 (ended December 31, 2025) shows revenue of $32.7B, up 15.6%, with gross margin expanding 1.55 points to 52.8%, operating margin up 2.67 points to 34.6%, and return on equity improving 8 points to 49.0%. These are not companies limping into earnings; margins and returns are inflecting upward. The cash generation is where the bull case is hardest to argue with. ASML's free cash flow reached $11.1B in fiscal 2025 — its best year on record in the supplied series — placing it in the 99.9th percentile of its sector peer group. TSM's free cash flow of roughly $870B in local currency sits in the 99.9th percentile of its peer group as well, alongside an operating margin in the 98.4th percentile. Both companies are also shrinking their share counts: ASML's shares outstanding fell 2.0% year over year to about 385.4 million, a buyback that compounds per-share value. Shareholder returns back the confidence narrative. ASML's trailing twelve-month dividend per share stands at $9.06, with annual dividend growth of 26.8%, and the latest payment of $2.138 per share went ex on July 28, 2026. TSM raised its dividend too, with trailing twelve-month payouts of $3.57 per share and 31.9% annual growth. Boards do not raise payouts at that pace when they expect demand to stall. The fund vehicle also fits the thesis. SMH is 100% technology, with TSM at 9.2% and ASML at 5.0% of the fund — the two catalyst names are inside the vehicle, and the look-through shows top-10 constituents growing revenue 31.8% year over year with a 58.5% blended gross margin. If TSMC and ASML beat, the diversification the idea…

Scores

• Conviction score breakdown: 52
• Thesis support: 75
• Trade readiness: 30
• Risk quality: 55
• Trigger proximity: 20
• Fundamentals trend: 80

Watch items

• SMH — ADX (14)
• TSM — ADX (14)
• ASML — ADX (14)
• SMH — Daily low vs first support
• SMH — Close vs Supertrend (10)
• SMH — Close vs first resistance
• TSM — TSMC earnings release date
• ASML — Dividend ex-date