Asian chip stock sell-off intensifies, TSMC results fail to meet high expectations
Asian chip stocks' losses intensified. Although the results were strong, they failed to meet investors' high expectations, raising concerns about increased capital spending and a weak earnings outlook. TSMC shares fell as much as 6.5% in Taipei after the company raised its capital expenditure and revenue forecast for this year. Despite the overall positivity, some analysts and investors stressed that in addition to fatigue with the years-long artificial intelligence boom, rising costs are also a concern. The Bloomberg Asia Chip Index fell more than 6%. Japanese flash memory manufacturer Kioxia Holdings fell sharply, falling 16% at one point. The company has lost half its value in recent weeks from its June high, but is still up about 400% this year. Gavekal Capital Ltd. Portfolio manager Leonid Mironov said that the stock price fell after the announcement of positive results, indicating that the market is at least temporarily considering shifting from chip stocks to other asset allocations. He added, "In addition, the valuation multiple is already too high, so even if Kioxia's stock price drops 50%, it is still not cheap." TSMC, the main maker of Nvidia chips, now expects capital expenditures of $60 billion to $64 billion in 2026, at least $4 billion higher than its previous forecast. Typically, an increase in capital spending is seen as good news, especially for those who benefit from the spending. However, after TSMC announced its results, the stock prices of large suppliers including Japan's Lasertec and Taiwan's Global Wafer fell. It is believed that the new expenditures are partly due to cost inflation caused by rising equipment prices, and the market is disappointed that the increase in capital expenditures will have a negative impact on TSMC's profit margins. Others blame overheated markets and overvalued valuations. TSMC shares have risen more than 50% so far this year. The stock currently trades at about 20 times forward earnings, compared with a five-year average of 18 times. James Ooi, market strategist at Tiger Brokers, said: "The sell-off may indicate that market sentiment is changing for chip stocks that have risen sharply this year. Even if the company delivers solid results, some investors are still beginning to question whether there is enough room for upside at current valuations."