Taiwan Semiconductor's quarterly revenue came in above the top of its guidance and profit rose 69%, but gross margin slipped from the prior quarter and management signaled prudence for next year. The U.S.-listed shares were lower before the open.
Taiwan Semiconductor Manufacturing's third quarter left little to criticize in the numbers. The debate is over one sentence about next year.
TSMC said Thursday that third-quarter revenue rose 50.9% from a year earlier to NT$1.494 trillion. In dollars, revenue was $46.72 billion, above the top of the company's own $44.6 billion to $45.8 billion guidance range. Net income rose 68.7% to NT$763.06 billion, ahead of the NT$746.3 billion analysts expected, according to LSEG data. Earnings were NT$29.43 a share, or $4.60 per American depositary receipt.
For the fourth quarter, TSMC guided revenue of $52.3 billion to $54.3 billion. The midpoint implies growth of about 14% from the third quarter. TSMC also raised its 2026 revenue growth forecast to about 44% in dollar terms, from more than 40%, according to accounts of the earnings call.
The margin
Gross margin was 66.4%, inside the 65% to 67% guidance range but down from 67.7% in the second quarter. Operating margin was 58.7%, above its 56% to 58% range. The fourth-quarter guide keeps gross margin at 65% to 67%.
The 2-nanometer process accounted for 8% of wafer revenue in its early ramp, alongside 33% for 3-nanometer and 28% for 5-nanometer. TSMC said the sequential decline in gross margin was primarily due to dilution from the initial ramp-up of its 2-nanometer process. TSMC kept its 2026 capital spending plan at $60 billion to $64 billion, the range it set in July.
The sentence
"Looking ahead, we continue to observe consumer and price-sensitive end-markets segments are being challenged due to the impact of rising component prices and macroeconomic uncertainties," Chief Executive C.C. Wei said on the earnings call, according to accounts of the call. "As such, we are being prudent in our business planning going into 2027."
The first half of that statement closely tracks language Wei used in July. The new element is the explicit reference to 2027 planning. TSMC also described AI demand as "extremely robust" and said it saw no sign of a slowdown.
The reaction
The stock was falling before the results. TSMC's Taipei shares closed down about 2% ahead of the release, during a regional selloff in which South Korea's Kospi fell 7.6%. The ADRs closed Wednesday at $430.00, down 3.4% as chip stocks slid, and were trading about 1.9% lower, near $422, at about 6:10 a.m. Thursday, in line with Nvidia and the broader semiconductor group. The results did not reverse the sector move, but there is no clear sign they added to it.
Two readings
The bullish reading is that the beat was broad, the fourth-quarter guide is strong, the full-year growth forecast went up, and TSMC still calls AI demand extremely robust.
The cautious reading is that TSMC is now planning conservatively for 2027 and its margin is drifting lower as it ramps its newest node, at the moment credit markets are questioning how the AI buildout gets financed.
What to watch
October monthly sales on Nov. 10, the 2027 capital spending plan TSMC typically gives in January, and whether ADR weakness persists once U.S. trading opens alongside Thursday's producer price report.