Bloomberg
(Bloomberg) — European stocks’ outperformance over the US has taken a surprising turn this year, with technology names in the driving seat.
Technology is the best-performing Stoxx Europe 600 index sector in January, up 10%. That’s a sharp contrast to the US, where the S&P 500 Information Technology Index is little changed.
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A key reason why European tech is burning brighter is its heavy exposure to chip equipment names. ASML Holding NV, ASM International NV and BE Semiconductor Industries NV make up nearly 40% of the Stoxx 600 Technology Index and are responsible for almost 90% of the sector’s new year rally.
Photographer: Wiktor Dabkowski/Bloomberg
Taiwan Semiconductor Manufacturing Co.’s bullish capex guidance this week looks set to underpin a durable move higher in shares of its supply-chain partners. The world’s biggest contract chipmaker forecasts an increase in 2026 capital spending of about 30%, as it speeds capacity expansion both in Taiwan and the US. It also anticipates that this will extend to a “significant” hike in capex over the coming three years.
The TSMC update is “materially positive” for European chip equipment suppliers, said Citigroup Inc. analyst Andrew Gardiner. Strong demand for chip tools will likely last beyond this year, when new foundries are put to use and more physical space becomes available, he adds.
On Thursday, Morgan Stanley raised ASML’s price target to €1,400, among the highest across Wall Street brokers, citing expectations for strong orders in the next two to three quarters, and more robust growth in 2027.
It’s quite a turnaround for Europe’s top chip-gear makers. Since the ChatGPT boom of early 2023, they have underperformed the Philadelphia Semiconductor Index as investors favored chipmakers that directly benefit from the artificial intelligence boom, rather than those that sit one layer behind the likes of Nvidia Corp. or Broadcom Inc.
Sentiment started to shift late last year on signs that demand for AI chips is becoming so strong that it now requires both logic and memory chipmakers to order additional tools. In December, Micron Technology Inc. said it’s doing “everything” it can to boost short-term capacity.
Before TSMC’s report, there were still some lingering doubts. There is no question that AI chip demand is strong, as evidenced by a recent surge in memory pricing. The problem has been that chipmakers are running out of physical space to stack equipment and get their production lines running. Plus, expectations had been raised, with shares of the three Dutch firms at the heart of the European tech rally already up by double-digit percentage points this month before the Taiwanese company’s commentary.