The three react very differently to the same news. Understanding where a company sits in that chain matters more than reading ten price forecasts.

Key Takeaways

• The semiconductor chain has three layers: designers, foundries, and production equipment makers. Their margins and risks differ widely.
• TSMC held about 73% of the foundry market in the first quarter of 2026, and its revenue grew 35.1% year over year.
• AI chip demand is the main engine of the current cycle, with the HPC and AI segment contributing 61% of TSMC's revenue.
• The industry is cyclical. Heavy capital spending today can become overcapacity two years from now.
• Geopolitical risk in this sector is not an add-on. It is a core part of the valuation.

Three layers you need to tell apart

Fabless designers

These companies design chips and hand production to someone else. Nvidia, AMD, Qualcomm, and Broadcom are in this group.

The upside is clear: capital spending is light because there is no factory to build, and margins are high when a design sells. The downside is just as clear: they depend on other companies' capacity, and when demand is high, production slots become something to fight over.

Foundries

Companies that manufacture chips designed by others. TSMC is the clearest example, and its position is almost unrivaled.

In the first quarter of 2026, TSMC's revenue grew 35.1% from the same period a year earlier, with gross margin rising to 66.2% from 58.9%. Earnings per share rose 58.3%. Its market share is about 73%, and 2026 capital spending is aimed at the upper end of the US$52 billion to US$56 billion range.

That last number is the most important one to understand. A foundry has to spend tens of billions of dollars years before it knows whether demand will still be there when the factory is finished.

Production equipment makers

The layer discussed least, even though its position is the most locked in. ASML of the Netherlands is the world's only maker of extreme ultraviolet lithography machines, which are needed to build the most advanced chips.

A position like this gives enormous bargaining power, but it also makes the company the most sensitive point in technology competition between countries. One country's export restrictions can immediately change its revenue outlook.

What drives the current cycle

The main engine is data center spending for artificial intelligence. The high-performance computing and AI segment contributed 61% of TSMC's revenue in the first quarter of 2026, and management described demand as very strong.

What deserves attention is that this demand comes from a small group of very large buyers: the big technology companies building data centers. That concentration brings fast growth when their spending rises, and an equally fast decline if one or two of them delay their plans.

This pattern matters because it is often misread. 35% growth is not this industry's normal growth rate. It is the growth rate during a phase of heavy spending. Comparing today's share price against the assumption that this growth continues forever is the most expensive mistake in this sector.

Why this industry is cyclical

Semiconductors have a boom-and-bust pattern that has repeated for decades, and the cause lies in the cost structure.

Building a factory takes two to three years and tens of billions of dollars. When demand surges, every player raises capital spending at the same time. Those factories finish at roughly the same time, and if demand has cooled by then, the result is overcapacity, falling selling prices, and eroding margins.

That means heavy capital spending today is good news for equipment suppliers now, and a risk for foundries two to three years out. Both readings are true at once, they just differ in time frame.

Risks that rarely make analyst summaries

Geographic concentration

Most of the world's most advanced chips are made in Taiwan. This is not a detail. It is the single largest risk across the entire sector, and portfolio diversification cannot remove it because almost every company in this chain depends on it.

Export restrictions

Changing export rules can close a large market overnight. A company that earns part of its revenue from one particular country carries a risk that does not show up in last quarter's financial statements.

Valuations that already price in optimism

When a share price already reflects high growth continuing for years, merely good growth can push the price down. In this sector, disappointment does not need to be a loss. Slowing growth is enough.

Volatility above the market average

Chip stocks move far more sharply than the index, in both directions. A correction of tens of percent is not unusual in this sector, even in periods when fundamentals are improving.

How to gain exposure through Mobee

On Mobee, exposure to this sector is available as tokens that track prices, not as direct shares. What you hold is an instrument issued by a third party, with rights that differ from owning shares through a broker, and the difference is covered in xStocks compared with conventional stocks.

There are two routes with different characters.

Through a sector ETF. SOXXON/USDT tracks a basket of semiconductor companies, trading at 577.21, up 1.32% in 24 hours. One token represents many companies, so the failure of one issuer does not decide your whole position. How the ETF format works is explained in how ETFs work and their risks.

Through a single issuer. INTCON/USDT is at 120.33, up 3.59%. A dedicated discussion of the company's dynamics is in the Intel stock analysis. Mobee also offers MRVLON, SNDKON, SMCION, SKHYON, and IRENON in adjacent sectors.

For beginners in this sector, a basket makes more sense than a single issuer. Picking one company means you have to be right twice: right about the direction of the sector, and right about who the winner is within it.

Frequently Asked Questions

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This article is for education only and is not investment advice. Asset prices can change at any time and the data in this article applies as of the date of writing. Do your own research before making any decision.