When Geopolitics Takes Over Growth: The New Language of Efficiency at ASML and TSMC

At the height of the semiconductor boom driven by AI, both ASML and TSMC have begun to repeatedly emphasize a single word: efficiency. This is not simply about operational fine-tuning. It reflects a deeper response to structural constraints.

ASML, facing export restrictions and order delays, has shifted its focus toward servicing its installed base. TSMC, constrained by global resource bottlenecks, is reallocating internal capacity and improving throughput to meet surging demand for advanced packaging. Both companies reveal a common logic. When the freedom to expand is no longer guaranteed, efficiency governance becomes the only viable strategic language.

It may be an early sign of a new industrial structure. One that is increasingly political, constrained, and shaped by systems of governance rather than markets alone.

Amid the AI boom, both ASML and TSMC delivered strong results in the second quarter of 2025. ASML reported steady growth in its service revenue, while TSMC continued to improve utilization in both advanced nodes and packaging capacity. These signals suggest that the semiconductor industry remains in a high-growth cycle, with AI-driven demand showing little sign of cooling down.

Yet during this peak, both companies repeatedly emphasized one word: efficiency. That choice of language caught our attention.

Why would companies highlight efficiency at a time of strong performance? Perhaps it is not merely about operational fine-tuning, but a strategic response to deeper structural constraints.

This is not an article about the strength of AI orders. It is an observation about a shift in language.

Starting from ASML and TSMC’s earnings calls, we ask: What role is efficiency now being asked to play?

When Efficiency Replaces Expansion as the Central Theme

To capital markets, ASML and TSMC have long stood as two pillars of the advanced semiconductor era. ASML supplies EUV tools, while TSMC turns those machines into the world’s most advanced chips. Yet in their second-quarter 2025 earnings calls, both companies showed a rare alignment in language. Instead of emphasizing surging demand or aggressive capacity expansion, they returned again and again to a single word: efficiency.

This shift is more than just a change in strategy vocabulary. It signals a broader transformation in how technology companies are governed. When expansion is no longer a given, efficiency governance becomes the language that keeps the growth narrative going.

ASML and TSMC’s Efficiency Logic: Rooted in Different Pressures

ASML’s turn toward efficiency stems from a slowdown in external demand and geopolitical export controls. With orders from China restricted and new equipment purchases delayed, the company is shifting its focus to service revenue from its installed base. This includes extending machine lifespans, improving utilization rates, and expanding after-sales services. It marks a shift from selling new tools to extending the value of existing ones.

TSMC’s efficiency, in contrast, is driven by internal resource constraints. Facing a surge in demand for AI-related advanced packaging, the company has limited short-term capacity to expand, even if space remains available at some sites. As a result, TSMC has focused on increasing the throughput of each machine to narrow the supply gap. It is pursuing greater output per unit of capital, without significantly increasing capital expenditure.

Growth Is No Longer a Free Choice

Although ASML and TSMC face different constraints, their efficiency strategies share a common logic. These are not innovations chosen under free market conditions, but strategic adjustments to geopolitical and institutional limits.

ASML faces new restrictions in supplying China. TSMC must respond to customer demand that is highly concentrated in specific process nodes and products, while also complying with political expectations from the US, Japan, and Europe to diversify its manufacturing footprint. When companies lose the ability to choose whom they serve, where they expand, or how they allocate resources, efficiency becomes the only language left to speak.

This is not just the loss of growth as a free choice. It marks the beginning of a structural shift. Companies are no longer agents of capital expansion, but stewards of constrained resources. No longer just innovators in the market, they are now collaborators in institutional frameworks.

Companies Navigating a Dual Narrative: Mediating Between State and Capital

These constraints force companies to operate between two narratives. To governments, they are strategic partners safeguarding supply chain security and technological sovereignty. To markets, they must still demonstrate growth potential and earnings stability.

ASML plays a key role in Europe’s technological strategy, yet must also maintain its valuation and investor confidence. TSMC emphasizes its image as a trusted manufacturing partner in global operations, while its earnings calls highlight cautious capital spending and throughput optimization.

When the growth narrative is no longer led by companies but shaped by policy and institutions, their role begins to shift. They are no longer just economic actors, but governance nodes embedded within a broader institutional framework.

They Are Not Outliers. They Are Forerunners

1.  Institutional Constraints and a Shifting Narrative

In the short term, efficiency governance can sustain operational resilience during demand peaks. Both ASML and TSMC have delivered strong performance. But over time, as each machine’s throughput approaches its physical limits, efficiency alone may struggle to support a continued growth story. What we are seeing is not an expression of broad market optimism, but a compromise with a reality where expansion is no longer unconstrained.

The language of efficiency used by ASML and TSMC is not just a company-specific strategy. It may signal the arrival of a new phase in techno-capitalism, one that is more politicized, more constrained, and increasingly shaped by governance. In this structure, companies no longer lead the narrative. Instead, they must navigate between the logic of states and the demands of capital.

This is a narrative space they did not choose, but were pushed into. When the external environment no longer allows for free expansion, internal optimization becomes the only option. ASML and TSMC are not anomalies. They are early examples of how growth is being redefined. More companies will follow this path and face the same question: when growth is no longer a free choice, how should we rethink what efficiency really means?

2.  Proactive Governance by Industry Leaders

To see these strategies only as responses to external pressure would be to overlook the deliberate pacing choices made by companies in leading positions. For firms already ahead in technology and market share, the language of efficiency can also reflect a proactive shift in governance and rhythm.

ASML’s machines are technically groundbreaking, yet market demand has been softer than expected. Export controls have further limited sales to China. In response, the company has pivoted toward strengthening its installed base services. This includes extending the lifespan of existing equipment, improving utilization, and expanding aftermarket value. The shift suggests that when the next wave of innovation lacks a clear commercial pull, industry leaders may choose to slow down and deepen their current platforms instead.

TSMC, meanwhile, faces geopolitical constraints in its global expansion. With simultaneous projects in the United States, Japan, and Taiwan, capital and talent are increasingly stretched. As AI-related demand for advanced packaging surges, the company cannot expand production as flexibly as before. It must instead reallocate resources between packaging and advanced nodes, relying on higher throughput and internal efficiency to manage bottlenecks under pressure.

These choices may be shaped by rational calculations, such as incentives to improve resource efficiency, or by institutional signals, such as geopolitical demands and subsidy frameworks. Either way, they show that even industry leaders no longer drive innovation solely through market opportunity. They now operate at the intersection of politics, resource constraints, and commercial viability. This emerging logic of governance may soon define the common path for more tech companies in the post-narrative era.

Conclusion: When Efficiency Becomes Language, the Narrative Has Quietly Shifted

As the era of unconstrained expansion fades and geopolitical limits deepen, efficiency has emerged as a new language for companies to communicate with the market. Yet this is not necessarily a display of strategic ambition. It is more a form of strategic accommodation.

The more important question is not how much efficiency has improved, but why companies are now collectively emphasizing it.

For the Industry:

1. Efficiency is not a substitute for expansion. It is a signal that expansion is being constrained. When companies shift from adding capacity to maximizing throughput, they are often responding to limitations in resource allocation. This reflects a reduced freedom in capital investment, shaped by policy interventions, market restrictions, technological bottlenecks, and rising capital costs.
2. Efficiency governance can limit future flexibility and innovation. An intense focus on minimizing waste and maximizing short-term performance may undermine the system’s long-term resilience and adaptability. It can reduce a company’s ability to absorb shocks, pivot quickly, or explore new directions beyond the current core.
3. The language of efficiency can become a trap for the industry. If both upstream equipment makers and downstream foundries use efficiency as a way to justify short-term strategies, the entire sector may gradually stop talking about new platforms, applications, or markets. Over time, this can narrow the narrative space and shrink the room for technological imagination.

For Capital Markets and Investors:

1. Efficiency is a signal, not a long-term growth catalyst. When a company emphasizes efficiency, it may be signaling a loss of expansionary freedom. This reflects a weakening of the growth narrative, rather than an improvement in operational fundamentals.
2. Efficiency-focused messaging warrants a closer look at the company’s cash flow structure. Can efficiency gains support sustained gross margin improvements or expanded free cash flow? If throughput is rising in the short term without improvements in ASP or product mix, the room for valuation expansion may remain limited.
3. From growth-based valuation models to cash flow governance logic. As companies shift from aggressive expansion to efficiency governance, their valuations may need to move from growth-driven models like PEG (Price / Earnings to Growth ratio) to more conservative free cash flow discounting. Continuing to apply high-multiple growth expectations risks a narrative breakdown.

As more companies across an industry begin to speak the language of efficiency, it may not be a sign of progress. Instead, it could be a signal that we’ve entered a new era of constrained expansion. This shift in language is a form of strategic accommodation, and also a way to maintain trust. For the industry, it may point to a narrowing space for innovation. For investors, it could be a reminder to reassess the foundations of valuation.

When firms adopt efficiency governance as a response to policy restrictions, they may also, unintentionally, normalize those very constraints. Efficiency is not the enemy of growth. But when it becomes the only story left to tell, we should begin to ask: is the narrative of growth quietly being rewritten?

This article is part of our Global Business Dynamics series.
It explores how companies, industries, and ecosystems are responding to global forces such as supply chain shifts, geopolitical changes, cross-border strategies, and market realignments.

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