Chip Leader TSMC Delivers Beat-And-Raise Third-Quarter Report
Taiwan Semiconductor Manufacturing Co. reported third-quarter results that exceeded Wall Street expectations and issued stronger-than-anticipated guidance for the current period, yet the chipmaker's stock fell Thursday morning as a broader sell-off in artificial intelligence-related equities weighed on investor sentiment.
The world's largest contract chipmaker, known as TSMC, posted earnings of $4.60 per American depositary receipt on revenue of $46.72 billion for the September quarter. Analysts surveyed by FactSet had projected earnings of $4.46 per share on sales of $45.67 billion. Year over year, TSMC's earnings climbed 61% while revenue increased 44%.
In local currency terms, the company's third-quarter earnings rose 69% from the prior year, with sales advancing 51%.
TSMC projected fourth-quarter revenue between $52.3 billion and $54.3 billion. The midpoint of $53.3 billion surpassed the analyst consensus estimate of $50.22 billion by more than $3 billion. In the same period last year, Taiwan Semiconductor generated sales of $33.14 billion.
Despite the strong results, TSMC shares declined 2% to $421.53 in premarket trading. The stock had reached an all-time high of $487.47 on Oct. 5, the same day it broke out from a technical chart pattern.
AI Sector Faces Financing Concerns
The decline came as the artificial intelligence sector experienced significant turbulence. During the week of Oct. 14, twenty of the most valuable global AI and semiconductor stocks shed more than $1 trillion in combined market value, driven by mounting concerns about higher borrowing costs and challenges in financing AI infrastructure expansion.
On Oct. 14 alone, four major AI-related companies—CoreWeave, Nebius, Oracle and Dell—lost approximately $80 billion in combined market capitalization as hotter-than-expected U.S. inflation data intensified worries about the cost of capital for AI infrastructure investment.
Industry executives added to the cautious tone. Chief executives from Broadcom and Intel warned on Oct. 14 that financing could emerge as a more significant obstacle to AI expansion than shortages of chips or electricity, with Broadcom's CEO characterizing it as potentially the biggest headwind to the AI boom.
The financing concerns carry particular weight given the scale of planned investment. Industry projections estimate that government and private sector participants will commit over $4 trillion to new AI data center infrastructure through 2028, with as much as $2.8 trillion earmarked specifically for semiconductor purchases.
Against this backdrop, disappointing revenue figures from AI company Anthropic further dampened sentiment. While Anthropic reported Q2 2026 revenue of $11.6 billion—a fourteen-fold increase from $787 million in the same quarter of 2025, and a revenue run rate reaching $65 billion by the end of July—the numbers fell short of elevated market expectations, triggering broader sector weakness.
Strong Demand for Advanced Technologies
TSMC's third-quarter performance reflected robust demand for its most advanced chip manufacturing processes. Shipments of 2-nanometer chips, which the company began mass-producing in the fourth quarter of 2025, accounted for 8% of total wafer revenue in the September period. The 2-nanometer technology delivers 10-15% performance improvements or 25-30% power reductions compared to the company's 3-nanometer process.
Three-nanometer chip shipments represented 33% of revenue, while 5-nanometer and 7-nanometer technologies contributed 28% and 10% respectively. Advanced technologies—defined as chips manufactured using 7-nanometer processes or smaller—generated 79% of TSMC's total wafer revenue.
Chief Financial Officer Wendell Huang attributed the quarter's performance to strong demand for leading-edge process technologies. Looking ahead to the fourth quarter, he said the company expects continued robust demand, including what he described as a steep ramp-up of 2-nanometer production.
TSMC manufactures chips for numerous fabless semiconductor designers including AMD, Apple and Nvidia. The company has benefited substantially from surging demand for processors that power data centers running artificial intelligence applications, a market projected to expand from $209 billion in 2024 to $492 billion by 2030, with AI and high-performance computing serving as primary growth drivers.
Margins and Market Position
The chipmaker's gross profit margin reached 66.4% in the third quarter, down from 67.7% in the second quarter but up from 59.5% in the year-earlier period. For the current quarter, TSMC forecast a gross margin between 65% and 67%, with a midpoint of 66%.
TSMC has cemented its dominance in the global foundry market, capturing a 72.5% share in the second quarter of 2026, up from 72.3% in the first quarter. Its nearest competitors, Samsung Foundry and SMIC, held market shares of just 5.9% and 5.4% respectively.
The company produces its most advanced 2-nanometer chips exclusively at facilities in Taiwan—Fab 20 in Hsinchu and Fab 22 in Kaohsiung—due to regulatory restrictions that currently prevent overseas production of the technology.
Analyst activity reflected the broader sector reassessment, with Barclays downgrading Dell Technologies to Equal Weight from Overweight on Oct. 14 as part of a wider reevaluation of AI-related investments.
TSMC shares appear on IBD's IBD 50 and Tech Leaders stock lists.
