Chip kings: Holland and Taiwan?

Nvidia is the flagship of AI and there is a reason why it is the company with the most value on the stock market in the world. But who makes the microchips you design? They are made by Taiwan Semiconductor (TSMC).

And, in turn, who provides the Taiwanese firm with the machines to produce these chips? They are made by the Dutch ASML.

This simple first paragraph explains at a glance the three most relevant links in the production chain. However, I recommend going deeper with this column I wrote last year: Semiconductors: leaders and dynamics

The following infographic reveals the main participants in this industry:

While ASML has managed to gain absolute global dominance in EUV (Extreme Ultraviolet) technology, there is still active competition in the DUV (Deep Ultraviolet) segment. The Japanese Nikon and Canon continue to manufacture and sell DUV lithography equipment, although ASML also maintains a very strong position in this market.

Importantly, ASML’s monopoly focuses on EUV lithography, which is crucial for the production of the most advanced chips.

However, for less complex manufacturing nodes (such as those used for many memory chips, sensors or microcontrollers), DUV machines are still the preferred option.

Additionally, in recent years, there has been news about Chinese companies like SiCarrier looking to develop their own lithography technologies, although they are still far from reaching the level of the market leaders.

Canon has also been exploring an alternative technology called nanoimprint lithography (NIL) as a possible long-term competitor to EUV lithography.

ASML Reveals AI Commands Shine. The titan reported revenue of 7.5 billion euros in the third quarter (210 million below expectations), but exceeded expectations in profits, with an EPS of 5.48 euros.

Bookings remained strong at €5.4 billion, far exceeding estimates (500 million above expectations), driven by an impressive €3.6 billion in new orders for its most advanced EUV machines (each costing almost €400 million). Gross margin improved to 52%, beating consensus and at the upper end of forecasts.

Management reaffirmed its guidance for 2025, with revenue growth of 15% and gross margin of 52%. For 2026, ASML attempted to reassure investors that sales would not be lower than in 2025, setting a bottom after the uncertainty of the previous quarter.

However, CEO Christophe Fouquet explicitly warned that sales to China are expected to decline significantly next year (from 30% of revenue in 2025 to about 25% in 2026), which will offset some of the AI-driven potential:

TSMC, for its part, continues to improve itself. Results:

– Sales increased 41% year-on-year to reach $33.1 billion.

– The gross margin was 59% and the operating margin was 51%.

The distribution of revenue by platform is revealing: high-performance computing (HPC) accounts for more than half of the total, with the mobile segment in second place:

TSMC, the world’s largest chipmaker, has had exceptional success in Taiwan, becoming a giant in the global technology industry. However, For internal and external reasons, it has embarked on a complex expansion beyond its home country.

In terms of revenue, TSMC produces two-thirds of all chips made by foundries (companies that make semiconductors designed by others). In the most advanced segment, which includes processors for mobile phones, laptops and data centers, the company’s participation exceeds 90%.

The rise of artificial intelligence is being fueled by the AI ​​accelerator, a type of chip designed to train and run large language models. Almost all of them are manufactured by TSMC. Nvidia depends completely on the Taiwanese firm.

So does its closest rival, AMD, another chip designer. Big tech companies like Google, Amazon, Apple and Microsoft, each designing their own custom silicon, also turn to TSMC.

Rising demand from technology companies has propelled TSMC to extraordinary heights. Between 2014 and 2024, its annual revenue increased from $24 billion to $88 billion. TSMC’s market value has reached $1 trillion, making it the ninth most valuable company in the world.

Since the launch of ChatGPT in November 2022, TSMC’s stock price has more than doubled:

For most of its history, TSMC has manufactured all of its cutting-edge chips in Taiwan. While the company has long operated some overseas plants that produce less sophisticated chips, it has only recently begun moving some of its more advanced manufacturing abroad. Over the past five years, it has undertaken a $190 billion global expansion.

Of that amount, 165 billion will go to the state of Arizona in the US, where the company plans to operate six state-of-the-art factories. Replicating TSMC’s precision on American soil will be difficult. Protecting its core operations from geopolitical risk could prove even more so.

Despite its size and importance, TSMC avoids the spotlight. This aversion to advertising is an integral part of their culture. TSMC was created to let customers shine while staying in the background.

When Morris Chang founded the company in 1987, chipmakers such as Intel, AMD and Texas Instruments designed and produced their own semiconductors. Chang made a contrarian bet: A manufacturing-focused company could outperform its vertically integrated rivals.

By specializing, TSMC could create unmatched manufacturing processes. By serving numerous customers, the company could achieve economies of scale and reduce costs.

His bet paid off and the industry was transformed. In the first decade of this century, more than 20 companies were making cutting-edge chips. By 2012, only three remained: TSMC, Intel and Samsung.

Today only TSMC prospers. Samsung has had manufacturing problems in its most advanced factories. Intel, once an industry leader, has fallen behind in chip technology.

According to The Economist, few companies can match TSMC’s scale and precision. Its yield, that is, the proportion of chips on a wafer that meet quality standards, is exceptionally high.

Their employees are even more formidable. Experts describe a culture where employees are forced to seek efficiency improvements even when systems are working perfectly. Any improvement in one factory is quickly replicated in all the others. Failures are obsessively searched for.

In 2025, 52% of revenue is expected to come from chips produced at its most advanced nodes, typically 5nm or lower. By 2027, this share is expected to reach approximately 70%:

For years, his growing dominance went unnoticed. Few outside the tech sector even knew about TSMC. This began to change in 2019, when the first Trump administration warned about the US’s dependence on Taiwanese chips. Then the pandemic caused factory closures, leading to a global chip shortage that halted production in industries ranging from electronics to automotive.

Faced with the deterioration of supply chains, governments became concerned. TSMC was no longer a simple manufacturer. It had become a strategic infrastructure.

International expansion presents new challenges. The company is building new factories in Japan and Germany, although its biggest bet is in Arizona, where it produces chips for Apple with performance comparable to that in Taiwan.

However, they could cost up to 20% more than those in Taiwan. Customers are expected to be willing to pay a premium for supply chain resilience.

A bigger concern is the difficulty of exporting its engineering culture. Workers from other places do not have the same rigor.

In Taiwan, TSMC is more than just a company. The Taiwanese call it “the sacred mountain that protects the country” and contributes to national security: as long as China depends on TSMC for its chips, it will hesitate to attack the island. This makes the firm’s global expansion politically sensitive.

Since 2019, ASML has been prohibited by the Government of its country from exporting its most advanced tools to China. This has hampered Chinese companies’ ability to produce 7nm and lower semiconductors.

In any case, the great work that ASML and TSMC will have to continue doing is ensured by the growing demand for infrastructure. Just look at the graph below that reflects the relentlessly increasing capital spending on data centers that technology titans will continue to address. I recommend reading my column Hyperscalers: Heading to Infinity about this.

There are almost 5,500 data centers in the US and just over 400 in China. There are many more of them in the world’s leading power than in all other major countries combined: the rest of the planet is far behind the US in terms of AI.

Happy week to all, always wishing that we never stop persevering. Let’s remember that the stock market will always attract those who are in a hurry to get rich, but it actually creates wealth for those of us who are not in a hurry.