In the same week that global AI stocks experienced a severe setback due to inflation and interest rate hikes, TSM.US handed over an almost impeccable report card.
The Zhitong Finance App learned that TSMC announced its financial report for the third quarter of 2026 on Thursday: consolidated revenue of NT$1.4942 trillion (US$46.72 billion), up 50.9% year on year and 17.6% month on month, exceeding the company's own financial range of 44.6 billion to 45.8 billion US dollars; net profit to mother of NT$763.06 billion, up 68.7% year on year and 8.0% month-on-month, breaking the quarterly record for the sixth consecutive quarter; this is also the 11th consecutive quarter of profit growth; diluted surplus of NT$29.43 per share, higher than approximately NT$28.3 billion Of Market estimates also exceeded LSEG's weighted expectations of 16 analysts (net profit forecast of NT$746.3 billion). The fourth quarter revenue guide given at the French conference was $52.3-54.3 billion — the median increase of about 14% over the third quarter, far higher than the market estimate of US$50.35 billion.
As far as the current AI semiconductor market is concerned, the weight of this financial report far exceeds the numbers themselves. As the exclusive foundry of Nvidia and Apple's most advanced chips, Nvidia AMD and Google all rely on it to turn cutting-edge designs into physical components as “global chip manufacturing hubs”, and TSMC is at the center of the market's AI narrative.
Revenue side: Demand for computing power is still hot, and price increases are on the way
By process, the most advanced 2 nm shipments accounted for 8% of wafer sales in the third quarter (3% in the previous quarter), 3 nm accounted for 33%, 5 nm accounted for 28%, 7 nm accounted for 10%, and advanced manufacturing processes (7 nm and below) accounted for 79% in total — the sharp rise in volume and price of advanced nodes is the core of revenue exceeding expectations.
The monthly revenue slope is more illustrative: it increased 44.7% year on year in July, 53.3% in August, and 54.6% in September (up to NT$511.86 billion), and the growth rate increased month by month. Bank of America Securities pointed out that behind the 2 nm acceleration volume is that demand for new Apple mobile SoCs and AMD server CPUs exceeded expectations. Combined with various accelerators such as Nvidia Rubin GPUs, AMD MI400, and AWS Trainium 3, they migrated to 3 nm, and the 5 nm and 3 nm capacity utilization rates remained above 100%.
Demand visibility is also growing. Bank of America says that the visibility of TSMC's 2nm orders has been extended to 2028, and predicts that the monthly supply and demand scale of advanced process wafers will exceed 500,000 wafers in the third quarter of 2028, with a capacity utilization rate of 105%; J.P. Morgan Chase determined that the tight supply of advanced manufacturing processes may continue until 2028. Chairman Wei Zhejia confessed at the July French conference that advanced packaging production capacity is extremely tight, even limiting customer growth.
There is also a clearer outline of the price increase issue. According to the analysis, the report points to a 3%-6% increase in wafer prices; Morgan Stanley and Yuanda Investment estimate that there is still room for a 5% to 10% increase in advanced process wafer prices in 2027. Gokul Hariharan (Gokul Hariharan), head of the Taiwan Research Department at J.P. Morgan Chase, believes that this season's gross margin is close to high financial estimates, supported by high utilization of 3/5 nm production capacity and rising OEM prices.
Cost side: Under the strongest production expansion cycle in history, gross profit is still under pressure
The boom on the revenue side is paying for dilution on the cost side. The gross profit margin for the third quarter was 66.4%, falling within the financial range of 65%-67%, but it fell 1.3 percentage points from 67.7% in the previous quarter — the dilution of the 2-nanometer mass production climb began to become apparent; the operating profit margin was 58.7%, exceeding the upper financial margin.
The market expects that a 2-nanometer climb may dilute gross margin by about 3-4 percentage points, and that overseas factory expansion will also have an impact of about 2-3 percentage points. And TSMC's production expansion is unprecedented: this year's capital expenditure will reach 60 billion to 64 billion US dollars (in July, it will be upgraded from 52 billion to 56 billion US dollars, and about 70% to 80% will be invested in advanced manufacturing processes), setting a company record; the company is currently simultaneously promoting the construction and equipment installation of about 20 factories — a new rhythm for a company that is used to processing 4-5 new plants at the same time. Overseas, in addition to Arizona's $265 billion (including an additional $100 billion in July), the company is evaluating a new plant site in Texas; Musk said last week that its company will build and operate its own Terafab AI chip base, and TSMC may lease part of the factory area.
Sellers' consensus on capital expenditure for 2027 continues to improve: the average institutional survey is about US$75 billion, Goldman Sachs targets 85 billion dollars, UBS 90 billion dollars (in addition, KGI estimates 70 billion to 72 billion; in 2028, UBS sees 105 billion and J.P. Morgan 100 billion).
Charles Shum's point is worth taking note of: “The bigger question in the third quarter was actually about 2027. TSMC's expansion in Arizona and negotiations with Terafab's possible hub in Texas will dilute the shaping capital expenditure with overseas gross margin, while reports in Taiwan point to a 3%-6% increase in wafer prices. The next generation A14 process node and advanced package updates should also clarify TSMC's response to Intel's challenges.”
The three cards that hedge against dilution are price increases, utilization rates, and product portfolios — if advanced manufacturing processes increase by 5%-10% as scheduled in 2027, the estimated gross margin of Damo and Yuanda is expected to cross or approach the 70% mark; the fourth quarter financial gross profit margin is 65%-67%, and the operating profit margin is 56.5% to 58.5%, indicating that management still has room to control profit margins. The appreciation of the Taiwan dollar was another major pressure on gross margin in the second half of the year (Hago Valley).
Signal to the storage chain: CowOS is HBM's throat, the heaviest weight in the AI cold wind?
TSMC does not do storage, but much of the boom in the global storage industry is tied to its production line. The AI chip must be tied to the HBM through the CowOS advanced package. CowOS is therefore a popular indicator for observing storage demand — KGI Investment points out that, driven by HBM4 basic bare crystal and strong demand, TSMC's 3 nm production capacity will continue to be tight, and the monthly production capacity will expand to 160,000/200,000 pieces from 2026 to the end of 2028.
This also explains why after South Korea's storage stocks fell sharply this Tuesday (10/13) (SK Hynix fell by about 10% in a single day), the market viewed the TSMC Act as “the last hope for the whole village”: the pace of orders, price increases, and production expansion for leading foundries is a verification point at the top of HBM and storage chain demand.
The context of this financial report is the darkest week for the AI sector. On Wednesday (14th), US CPI surpassed expectations (3.7% year over year), revived concerns about interest rate hikes. The yield on 30-year US bonds rose to 5.63% intraday, and AI stocks that are sensitive to interest rates fell sharply across the board: AI cloud service provider CoreWeave plummeted 15.46% in a single day, with a cumulative monthly decline of about a quarter. The yield of bonds due in 2032 and 9.625% of the coupon rose by 15%, and the price fell below 80 cents into the “difficult range”. The five-year CDS price range was about 881 basis points (about 547 at the end of June) — The probability of default within five years has exceeded 50%; Oracle fell about 9%, Dell fell more than 11%, Nebius fell 10%, the Nasdaq 100 index fell 2%, and the total market value of many AI infrastructure stocks evaporated about 80 billion US dollars in a single day. Musk retweeted the relevant report and left a “scary” comment.
The problem of financing capacity in the face of soaring interest rates on US bonds
Comparing the two, TSMC's financial report has just drawn a watershed in this controversy. CoreWeave's business model is “borrowing money to buy Nvidia chips and then rent out computing power” (cumulative debt issuance of about US$22 billion plus loans of US$26 billion, with various types of financing exceeding US$35 billion during the year). D.A. Davidson analyst Gil Luria's criticism bluntly stated: “If CoreWeave borrows at 9% of the cost and the best return it can get is only 5%, then there is no point in scaling up to much.” TSMC, on the other hand, is positive self-proof of “order → revenue → cash flow”: six consecutive quarters of record net profit, accelerated monthly revenue, extended order visibility until 2028, and 20 new factories that have been launched with real money.
After the US CPI data for September was released on Wednesday, the market's expectations for another rate hike by the Federal Reserve clearly heated up, putting direct pressure on semiconductor stock valuations through “higher and longer interest rates.” The logical chain is clear: long-term yield jumps → discount rates rise → growth stocks and AI hardware stocks that are most sensitive to interest rates are under pressure. At the same time, as US bond yields soar, the market is also paying more and more attention to corporate financing costs, rather than just the growth of future orders. For asset-heavy AI hardware companies, the biggest fear is that capital has not yet been fully borrowed, but interest rates have soared.
Supporting evidence from the upstream side is in place: lithography machine leader Asmack said on Wednesday that customers have begun to negotiate orders for 2029 and 2030, easing concerns that the AI investment boom is losing momentum. AJ Bell's investment director Russ Mold pointed out that if TSMC renews its commitment to expand production, it will send a strong signal to the market that “growth momentum has not yet peaked” — the fourth quarter guidance of $52.3-54.3 billion, which is the signal itself.
Of course, TSMC cannot hedge against the other half of the risk: if financing costs continue to rise, the downstream model of “borrowing first to build, then redeem revenue” will eventually be transmitted in reverse to the risk of OEM orders. This is the part other than the financial report that is determined by interest rates. However, thanks to its role as a leading global foundry, its strong ability to generate cash flow can finance it and continue to generate blood even though it will face gross profit pressure.
The market's pricing for the leader is still generous: Asia's most valuable company, with a market capitalization of about $2 trillion (about twice that of Samsung Electronics), took the lead in reaching a record high in global chip stocks at the beginning of the month, and has accumulated a cumulative increase of about 57% in Taipei this year (equivalent to a 62% increase in the general market). Foreign investors collectively raised their target prices before the French meeting: Macquarie 4,410 NTD, Citi 4,000, Goldman Sachs and J.P. Morgan 3,300, and Daimo 3,088; Bank of America raised the ADR target price from $590 to $620, implying about 37% upward space. J.P. Morgan expects demand growth to continue until 2028 and drive annual revenue growth of 30%; the Citibank Laura Chen team is optimistic that major customers such as Nvidia and AMD will accelerate, and continue to boost TSMC's AI-related revenue in 2027.