TSMC Stock Falls 1.8% Despite Record Profit as AI Spending Concerns Hit Chip Shares

Key Takeaways

• TSMC’s US-listed shares fell 1.80% to $422.25 on October 15, despite stronger earnings and an upbeat fourth-quarter revenue outlook.
• Third-quarter net profit increased 68.7%, while management raised its 2026 revenue growth outlook to around 44% in US dollar terms.
• Investors weighed strong advanced-chip demand against margin pressure, rising investment requirements, and a broader semiconductor sell-off.

TSMC Shares Retreat Despite Strong Earnings

Taiwan Semiconductor Manufacturing Company (TSMC) saw its US-listed shares close lower on October 15, despite reporting record earnings. The shares fell 1.80% to $422.25, with trading volume exceeding 22 million shares, approximately double the recent daily average. Although the shares edged higher in extended trading, the decline underscored the disconnect between TSMC's operational performance and the prevailing sentiment in the semiconductor sector.

Despite TSMC's strong results, investor concerns about the costs associated with AI infrastructure and the returns on such investments contributed to the broader sell-off in semiconductor stocks, as evidenced by the Philadelphia Semiconductor Index's 0.9% decline, marking its seventh consecutive losing session.

Third-Quarter Profit Rises 69%

TSMC reported a third-quarter net income of NT$763.06 billion, reflecting a 68.7% increase year-over-year. Revenue reached NT$1.494 trillion, a 50.9% increase in local currency. In US dollar terms, revenue totaled $46.72 billion, up 41.2% year-over-year, with diluted earnings of NT$29.43 per ordinary share, equivalent to $4.60 per ADR. Both sales and earnings surpassed market expectations, reinforcing TSMC's pivotal role in the advanced-chip supply chain.

However, the earnings beat did not translate into a share-price gain, as investors also considered anticipated growth and whether the outlook justified the necessary spending.

Fourth-Quarter Guidance Points to Further Growth

TSMC forecasted fourth-quarter revenue between $52.3 billion and $54.3 billion, with a midpoint of $53.3 billion indicating approximately 14% sequential growth. Management also raised its full-year revenue growth outlook to around 44% in US dollar terms, driven by sustained demand for leading-edge technologies. This guidance serves as a counterbalance to the weakness in semiconductor shares, although investors remain cautious about the long-term economics of AI infrastructure investments.

Gross Margin Pressure Draws Attention

TSMC reported a third-quarter gross margin of 66.4%, with fourth-quarter guidance suggesting a slight decline to a range of 65% to 67%. Management attributed this expected pressure to the ramp-up of 2-nanometre production and dilution from overseas factories. While productivity gains and cost improvements are anticipated to mitigate some of this pressure, the figures illustrate that revenue growth alone does not resolve investment debates.

Higher Spending Complicates the 2027 Outlook

TSMC maintained a capital expenditure budget of $60 billion to $64 billion for 2026, with plans for significantly higher investments from 2026 to 2028 compared to previous years. Despite strong AI demand, the company adopted a cautious approach for 2027, citing macroeconomic uncertainties and pressures on consumer markets from rising component costs. This complexity underscores the importance of accurate demand planning amidst capacity expansion.

Terafab Discussions Depend on Operational Control

TSMC's potential involvement in Elon Musk's Terafab project was also a topic of discussion. CEO C.C. Wei emphasized that any facility producing TSMC chips must be operated by TSMC, indicating that operational control is a prerequisite for participation. Until commercial terms and production arrangements are finalized, the financial implications of this potential expansion remain uncertain.

Analyst Outlook

Needham analyst Charles Shi maintained a Buy rating for TSMC and raised the target for its ADRs from $530 to $560 following the earnings report. This target increase reflects a positive long-term outlook despite the near-term share-price weakness, highlighting the distinction between daily trading responses and longer-term earnings assessments.