TSMC Just Posted Record Profit for the Sixth Straight Quarter. Why Did the Stock Fall?

Taiwan Semiconductor Manufacturing Corporation (TSMC) reported record profit for the sixth consecutive quarter in its third-quarter earnings, despite a challenging market for AI stocks. The company's revenue surged 50.9% to $46.7 billion, and its margins expanded significantly, with gross margin reaching 66.4% and operating margin reaching 58.7%.

This performance surpassed expectations and showcased TSMC's pricing power. Adjusted earnings per share rose from $2.92 to $4.60, outperforming estimates. The company's 3nm chips, which now account for 33% of sales, and advanced technologies, including 7nm chips and below, contributed to 79% of its revenue. High-performance computing (HPC), driven by AI, made up 68% of its revenue.

Despite the strong earnings, TSMC's stock fell 2.2% as of Thursday afternoon, reflecting investor skepticism towards AI stocks due to concerns about rising interest rates, circular financing deals, and competition from China. CEO C.C. Wei emphasized the robust demand for AI chips and expressed optimism about the AI market's long-term outlook.

However, Wei also cautioned that consumer and price-sensitive end-market segments were facing challenges due to rising component prices and macroeconomic uncertainties. The AI market, according to Wei, appears to be insulated from these headwinds. The sell-off in TSMC stock may be discouraging for some investors, but the company's wide economic moat as the dominant third-party manufacturer and the continued growth of chip demand, particularly in emerging products like robotics, suggest that TSMC remains a strong long-term investment.