TSMC breaks records once again driven by the AI boom

Taiwanese chipmaker TSMC published its third-quarter results on Thursday, which once again exceeded market expectations and marked the sixth consecutive record quarter in terms of net profit.

• The company generated 763.1 billion TWD in net profit (~$23.8 billion), representing an increase of 68.7% YoY and clearly beating Bloomberg's consensus of 739.5 billion TWD.
• Revenue reached 1.49 trillion TWD ($46.7 billion), growing by 50.9% YoY (compared to a forecast of 1.46 trillion TWD).
• Operating profit stood at 876.4 billion TWD with an operating margin of 58.7%, while the gross margin settled at 66.4% — slightly below the 67.7% recorded in the previous quarter, which the company attributes to ramp-up costs for its newest 2nm technology node.

The scale of the positive surprise was also evident on a per-share basis: earnings per share (EPS for ADRs listed in New York) came in at $4.60 compared to the expected $4.45 (+57.5% YoY). Revenue expressed in USD ($46.72 billion) beat market estimates by 2.4% and grew by 41.2% compared to the same period last year.

What is driving these spectacular results?

Insatiable demand for artificial intelligence infrastructure remains the main growth driver. Advanced technologies (7nm chips and newer) accounted for as much as 79% of wafer revenue, with the 3nm node alone contributing 33%. Production in the breakthrough 2nm technology, launched only this year, has already brought in 8% of revenue, demonstrating the impressive pace of adoption of the latest processes by key customers. As the exclusive supplier of the most advanced chips for Nvidia and Apple, TSMC's results are widely treated as a reliable barometer of actual demand for AI computing power.

Importantly, TSMC's report arrived amid growing doubts regarding the profitability of global AI spending, fueled by the recent sell-off in shares of cloud provider CoreWeave. However, TSMC presented a strong counterargument: demand for flagship integrated circuits is not weakening, regardless of market nervousness around end-application companies.

Forecasts and Capital Expenditures (CapEx)

The company has once again raised its full-year revenue growth guidance for 2026 (currently "slightly above 40%" in USD terms), and the presented results suggest that these estimates may still prove to be conservative. This year's capital expenditures are projected to reach a record level of $64 billion.

Market attention, however, is shifting to 2027: while the Bloomberg consensus predicts capital spending at $75 billion, Goldman Sachs and UBS have raised their forecasts to $85 billion and $90 billion, respectively. Such significant increases indicate that the market may still be underestimating the scale of the company's global expansion.

TSMC is expanding its manufacturing network at an unprecedented pace, currently building around 20 facilities simultaneously (compared to the standard 4-5). After committing an additional $100 billion in investments in Arizona in July (totaling $265 billion in US commitments), the company is currently analyzing the construction of another manufacturing complex in Texas to meet the growing demand from US data centers.

Market Reaction and Valuation

TSMC shares have gained nearly 60% this year, and the company was among the first in the semiconductor sector to reach new all-time highs following the July pullback in the tech sector. Despite recent downside pressure resulting from general profit-taking across AI stocks, the company's valuation remains reasonable. The Forward Price-to-Earnings (Forward P/E) ratio currently stands at around 21.7x, above its seven-year average (17.1x), but noticeably below the June peak of 26x (when the stock price exceeded $477) and below the levels seen in 2022, when the stock traded at less than a quarter of its current price.