The chip industry has experienced a tumultuous week that can only be described as "a world of extremes," starting with ASML's poor performance dragging down semiconductor stocks, followed by TSMC's dazzling financial report, which reignited market optimism about unabated AI demand.

The contrast between the cold and the hot reflects the internal division within the chip industry. Analysis suggests that ASML's customers, aside from TSMC, are facing their own challenges, with Intel and Samsung each confronting their difficulties, while TSMC's clients, such as NVIDIA, still have strong demand. TSMC's performance is a better indicator of AI demand.

In short, the AI-driven chip boom is not over yet, but only the technological leaders will emerge as the ultimate winners.

ASML's "collapse," TSMC's "explosive" performance

The direct trigger for the stock price turmoil was the performance of the two giants.

On Tuesday, the Dutch lithography equipment giant ASML "accidentally" released its third-quarter report ahead of schedule, showing that the company's order backlog was significantly lower than expected, returning to a three-year low and dousing the market with cold water.

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That day, ASML's US stocks plummeted by 17%, marking the largest single-day drop since 1998, and dragged down chip stocks collectively, resulting in a total market value loss of over $420 billion for US-listed chip manufacturers and large-cap chip stocks in Asia.

With the giant's performance causing concern, the market began to question whether AI demand was still viable. Fortunately, TSMC's financial report, released just one day later, did not disappoint investors.

On Thursday, TSMC's third-quarter report exceeded expectations across the board, with revenue growing by 39.0% year-on-year to a record high, net profit surging by 54% year-on-year, and gross margin also reaching a record high. TSMC also raised its performance guidance.

In after-hours US stock trading, TSMC's shares once rose by more than 12%, with a total market value breaking through the trillion-dollar mark, and the closing increase settled at 9.79%.TSMC is a Better Barometer for AI Demand

As giants in the upstream and downstream of the chip industry, the performance gap between ASML and TSMC is significant, which requires a closer examination of their respective customers.

ASML sells large photolithography machines to chip manufacturers, including TSMC, Samsung, and Intel. However, both Intel and Samsung are facing their own challenges, apart from TSMC.

Intel, once a leader in technology trends, has missed opportunities in emerging fields such as mobile internet and AI due to strategic errors and is being left behind by the times. It has entrusted TSMC with orders for processes below 3 nanometers.

Samsung Electronics has also "missed out" on the AI boom, failing to seize opportunities in cutting-edge process chips and high-end memory chips like HBM, significantly lagging behind TSMC in market share for contract manufacturing. This month, Samsung Electronics issued a rare apology statement due to operating profits falling below market expectations.

Only TSMC has been sprinting ahead in advanced processes. The latest financial report shows that TSMC's revenue from advanced processes has further increased, with 3-nanometer and 5-nanometer processes together contributing 52% of the revenue in the third quarter.

Looking at TSMC's customers, which include NVIDIA, leading the AI chip craze, as well as AMD and Qualcomm, the demand from these companies remains strong. Analysts believe that TSMC is a better barometer for measuring AI demand.

Morningstar equity analyst Javier Correonero told Business Insider: "From a technical standpoint, Intel and Samsung are lagging behind TSMC, which is just a customer-specific issue because Intel and Samsung cannot correctly improve new nodes, but this has nothing to do with demand."

In a conference call on Thursday, TSMC CEO CC Wei stated that AI demand is real and denied that artificial intelligence is in a bubble.

AvaTrade Chief Market Analyst Kate Leaman said: "In the short to medium term, AI applications, data centers, and advanced chips will continue to drive strong demand... Therefore, although ASML may experience a temporary slowdown, companies like TSMC may continue to achieve strong performance with these high-growth areas."As other chip companies such as Qualcomm and Intel announce their earnings in the coming weeks, the market will present a clearer picture.