TSMC Posted Record Profit After Asian Chip Stocks Had Already Tumbled

TSMC reported third-quarter results on October 15, after the Taiwan market closed. Net profit rose 68.7% from a year earlier to NT$763.1 billion, about $23.6B. It was the sixth record quarter in a row.

The same day, Asia went through one of its worst chip selloffs of the year. The Kospi triggered a circuit breaker in the morning and closed down 7.57%; TSMC's Taiwan shares lost 2.01% before the results.

A Beat, and a Higher Outlook

Revenue of $46.72B topped both the company's own $44.6B-$45.8B range and the $45.41B consensus. Earnings per ADR came in at $4.60 against $4.42 expected.

The one line that fell short was gross margin: 0.1 point below estimates and 1.3 points below the prior quarter. The company blamed the initial ramp of 2-nanometer production.

Fourth-quarter revenue guidance is $52.3B-$54.3B, a 14% sequential rise at the midpoint, with gross margin of 65-67%. Full-year growth is now seen at about 44% in dollar terms (How to Read Earnings Day).

AI Chips Carry the Demand

High-performance computing, meaning data center chips, made up 68% of revenue, up from 57% a year earlier. The 3nm node brought in 33% of wafer revenue, and 2nm, now at meaningful volume for the first time, brought in 8%.

CEO C.C. Wei left unchanged his mid-to-high-50s percent annual growth target for AI accelerator revenue over 2024-2029, but said the outcome will probably be higher. He called demand extremely robust and said he sees no slowdown.

Capital spending for 2026 stayed at $60B-$64B. The company said 2026-2028 spending will be significantly higher than in the prior three years, and the CFO said tool price inflation is real (ASML's spare-parts price hike).

Asia Sold Before the Numbers Arrived

The trigger was US September inflation: 3.7% a year, against 3.6% expected. The odds of a 25-basis-point Fed hike at the late-October meeting rose to 31.6% from 22.1%. The Philadelphia Semiconductor Index fell 4.3% on October 14, its sixth straight loss.

Foreign investors sold a net ₩3.62 trillion (about $2.7B at 1,348 won to the dollar) of Korean shares; SK Hynix ended at ₩1,262,000 ($936) and Samsung at ₩210,000 ($156). Memory faced three extra pressures. Chinese memory maker CXMT said it had commercialized a new DRAM design, Samsung and SK Hynix finished their buybacks, and the yield on CoreWeave debt hit 15%.

The market did not wait for TSMC's numbers. It sold first, and it sold hardest where profits depend most on price. The Nasdaq 100's past month shows the selling was not confined to Asia.

The Margin Math: Small Dilution, Big Volume

TSMC's profit comes from prices set in annual negotiations and from full capacity. A memory maker's profit moves with contract prices; with fixed costs, a 10% price drop hits profit harder than 10%.

Wei summed it up the same way. "There is no ceiling for TSMC's profitability, but a dramatic increase will not happen overnight either." The stock's past three months show how deep the pre-results selling ran.

What It Means for Rivals and Suppliers

Wei said CoWoS packaging remains customers' first choice and that 2nm capacity will more than double in 2027. That keeps orders from Nvidia, AMD and Broadcom at TSMC through 2027. The company named HBM and power as two supply-chain variables; if memory is the bottleneck, Micron and SK Hynix are the winners.

The selling in Seoul did not reject this demand picture. It priced fears that memory prices are near a peak and that a Chinese rival is adding capacity.

What It Means for Investors

• Asia priced rate and funding fears, not the results; TSMC's 14% guidance gets its first test in today's New York session.
• The guidance supports Nvidia, AMD and Broadcom orders, while the $60B-$64B capex supports toolmakers such as ASML, Applied Materials and Lam Research.
• The threshold to watch is whether Q4 gross margin slips below 65%; the next checkpoint is the SK Hynix and Samsung earnings at month-end.
• The risk to the thesis is a Fed hike on October 27-28 and higher borrowing costs that force AI customers to cut orders (The Yield Curve).

Sources: TSMC's results and guidance come from the company's October 15 release and from Reuters, Investing.com and TradingKey reports; call remarks are from the Investing.com transcript. Korean closing data are from Seoul Economic Daily, the Kospi circuit breaker and foreign flows from Reuters, and Taiwan data from Focus Taiwan. Kioxia's decline is based on intraday reports. Fed hike odds are from futures pricing cited by Investing.com.