TSMC Posts Sixth Straight Record Profit, but Chip Selloff Drags Shares

TSMC just posted its sixth straight record quarterly profit, and the stock fell anyway. Shares of Taiwan Semiconductor (TSM) slipped about 2% Thursday as a brutal stretch for chip stocks overpowered a very good report.

The numbers were strong. Net income hit NT$763.1 billion, up 68.7% from a year earlier and ahead of the NT$746.34 billion analysts expected, while revenue of NT$1.49 trillion (about $46.4 billion) edged past forecasts, as CNBC reported.

Margins are the quiet story. Operating margin came in at 58.7%, above the top of TSMC's own 58% guidance range, though gross margin eased to 66.4% from 67.7% in the second quarter.

Guidance points higher. TSMC expects fourth-quarter revenue of $52.3 billion to $54.3 billion, roughly 14% above the third quarter and 58% above a year ago at the midpoint, with gross margin of 65% to 67%.

The mix shows where the money is coming from. High-performance computing made up 68% of revenue and smartphones 21%, while 3-nanometer chips were the biggest single slice at 33%. Automotive was the fastest-growing platform quarter over quarter, up 23%.

"We observe increasing AI demand fueled by the rising adoption of agentic AI as we transition from chatbot to AI assistance." — C.C. Wei, CEO, TSMC

The spending plans are just as big. TSMC reiterated a 2026 capital budget of $60 billion to $64 billion, and CFO Wendell Huang said spending from 2026 to 2028 should be "even more significantly higher than the past three years," per Yahoo Finance's call coverage.

That's a company telling you it can't build capacity fast enough. SemiAnalysis's Sravan Kundojjala told CNBC that TSMC is checking whether customers have the financing and supporting parts to actually deploy their chips, and still sees demand running well above supply.

So why the dip? Context. The iShares Semiconductor ETF (SOXX) has now fallen eight sessions in a row, its first slide that long since 2015, and it's down more than 15% over the stretch, CNBC's market blog noted.

Traders are fretting about a possible memory-chip glut, slower-than-hoped AI lab revenue growth, and Treasury yields near 5%. TSMC got swept up in all of it, even though it's still up more than 41% for the year.

The expansion story keeps growing, too. TSMC said its second Arizona fab is built and being fitted with equipment, with mass production now expected in the third quarter of 2027, and CEO Wei confirmed teams are evaluating Texas and talking with Elon Musk's Terafab project.

Another reason to take the dip seriously: TSMC is the manufacturer behind chips designed by Nvidia, AMD and Broadcom. When its order book looks this full, it tells you something about what those customers expect to sell next year, which is why its report carries more weight than most.

The risks are real. Gross margin slipped sequentially, capital spending is heading higher, and a sector that falls this fast can keep falling even on good news. If AI financing worries spread, even the supplier with the strongest order book gets marked down.

Cash flow is the counterweight. Free cash flow jumped to NT$476.56 billion from NT$139.38 billion a year ago, which gives TSMC plenty of room to fund the buildout without straining.

For investors, the setup is a record-profit company trading with a sector rout, not a broken story. That argues for scaling in over several weeks rather than buying everything at once, and watching whether the chip ETF finally snaps its losing streak.

If you already own TSMC, nothing in this report argues for selling. If you don't, a sector in an eight-day slide is usually a better time to build a position than a sector at a record high, as long as you size it with a possible further drop in mind.

Next markers to watch: whether TSMC lands inside its $52.3 billion to $54.3 billion fourth-quarter range, and whether gross margin holds at 65% or better.

Bottom line: the fundamentals just got stronger while the share price got weaker. Sooner or later those two lines usually meet.