Taiwan Semiconductor (TSMC) Posted Record Profit and the Stock Still Fell. Here's What the Market Is Worried About.
The chipmaking giant is still firing on all cylinders, but investors are becoming more cautious.
Taiwan Semiconductor Manufacturing Company (TSMC) reported record-breaking earnings for the third quarter of 2026, with revenue and net profit soaring by 50% and 69% respectively, marking their sixth consecutive quarter of record profits. Despite this impressive performance, TSMC's stock declined, falling 7% over the past month.
TSMC is the world's leading contract chipmaker, manufacturing advanced chips for industry giants like Nvidia, AMD, and Broadcom. The majority of their recent growth has been driven by the expanding Artificial Intelligence (AI) market. In the latest quarter, TSMC produced 68% of its revenue from high-performance computing (HPC) chips for AI clients, including Nvidia, with HPC revenue growing 22% sequentially.
Moreover, TSMC generated a third of its revenue from its 3nm node, powering Nvidia's newest Vera Rubin computing platform. Analysts expect TSMC's revenue to rise 44% in USD terms for the full year, driven by increased AI chip production and the expansion of its 2nm node. However, several concerns weighed down TSMC's stock. Its gross margin, which matched guidance of 65%-67%, dipped sequentially from 67.7% in the second quarter.
This sequential contraction, coupled with record-high capex (47%-56% increase from 2025), may have unsettled investors. Additionally, the AI market's potential slowdown due to rising interest rates and other macroeconomic headwinds could impact TSMC's HPC growth, as hyperscalers like Amazon and Microsoft may reduce their AI spending.
Lastly, TSMC's stock had already risen 39% year-to-date, limiting its near-term growth potential. Despite these challenges, TSMC remains a pivotal player in the semiconductor market, and experts predict steady revenue and EPS growth from 2025 to 2028, with CAGRs of 36% and 42%, respectively. This growth trajectory makes TSMC an attractive investment for the foreseeable future, as it trades at a modest 16 times next year's earnings. As such, accumulating TSMC could still be a wise decision for long-term investors in the AI boom.
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