The wheel of fortune turns! European tech stocks surged 10% at the start of the year, crushing U.S. stocks, with the "three chip giants" contributing 90% of the gains.

Since the beginning of this year, European technology stocks have unexpectedly outperformed their U.S. counterparts by a large margin. The Stoxx 600 Technology Index rose 10% in a single month, making it the second best performing sector in the region; meanwhile, the S&P 500 Information Technology Index was nearly flat during the same period.

This robust performance has been primarily driven by the semiconductor equipment sector, catalyzed by TSMC’s significant increase in its capital expenditure outlook. TSMC expects its capital expenditures to increase by about 30% in 2026 and announced plans to “substantially” ramp up spending over the next three years to accelerate capacity expansion in Taiwan and the United States. This better-than-expected capex plan directly benefits its supply chain partners.

Europe’s “semiconductor trio”—ASML, ASM International, and BE Semiconductor—account for nearly 40% of the Stoxx 600 Technology Index, and have contributed about 90% of this sector’s gains this year. Citigroup analyst Andrew Gardiner noted that TSMC’s latest developments offer “substantial benefits” to European chip equipment makers. Morgan Stanley has raised ASML’s target price to 1,400 euros, one of the highest among Wall Street institutions, citing expectations for stronger order momentum over the next two to three quarters as well as more robust growth into 2027.

TSMC’s Capex Leads Industry Shift

TSMC’s capital spending guidance has effectively eased previous market concerns about bottlenecks in capacity expansion. Although soaring memory prices have confirmed strong demand for AI chips, investors once worried that chipmakers lacked enough physical space to install equipment and start new production lines.

Prior to TSMC’s financial report, share prices of Dutch equipment firms ASML, ASM International, and BE Semiconductor had already posted double-digit gains this month, with high market expectations built in ahead of time.

Ken Hui, director at Bakewell Alpha Fund, pointed out that, given the higher capital intensity needed for AI chip production, other manufacturers like Intel are likely to follow TSMC in raising their capex targets. He believes the rebound in the chip equipment sector "still has room to run." Citi analysts added that strong demand for equipment may persist beyond this year, as more newly built fabs come into operation and physical bottlenecks in expanding capacity gradually ease.

Previously, Micron Technology stated last December that it was “doing everything possible” to boost short-term capacity, offering early signals of demand translating to expanded production.

Traditional Chipmakers See a Rebound

The rally in European tech stocks is no longer limited to equipment manufacturers. Traditional chipmakers that have underperformed in recent years, such as Infineon and STMicroelectronics, posted gains of around 10% at the start of 2026, reflecting rising investor expectations for a recovery in demand for automotive and industrial chips after years of stagnation. After Infineon's FY2026 earnings-per-share forecast was cut by more than 20% last year, lower profit expectations have left room for positive surprise. A recent earnings report from the U.S. peer Microchip has further boosted market confidence in a cyclical recovery for the sector.

JPMorgan strategist Mislav Matejka and his team stated:

"Among high-beta areas, we favor semiconductor stocks in the tech sector, which include not only AI-exposed names like ASML but also more traditional, cyclical players like Infineon, as well as companies involved in intellectual property, automotive, and consumer fields, which have lagged behind for some time."

For Europe’s leading chip equipment makers, this marks an important market shift. Since the AI boom triggered by ChatGPT in early 2023, these stocks have long lagged behind the Philadelphia Semiconductor Index, as investors preferred chipmakers that directly benefited from the AI wave rather than upstream “pick-and-shovel” equipment suppliers. But since late last year, market sentiment has started to shift; evidence suggests that demand for AI chips is now so strong that both logic chip and memory chip makers need to ramp up equipment purchases, providing a new source of growth momentum for the equipment sector.

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