On Thursday, TSMC announced its third-quarter earnings. Driven by sustained global demand for AI chips, the company reported record quarterly profits, surpassing market expectations.
Here is TSMC's third-quarter earnings report, compared to the LSEG Smart Consensus estimate (which weights analysts with higher long-term forecast accuracy more heavily):
- Revenue: TWD 1.49 trillion ($46.36 billion); market expectation: TWD 1.47 trillion
- Net profit: NT$763.1 billion; market expectation: NT$746.34 billion
The world's largest chip foundry has posted record net profits for the sixth consecutive quarter, with net profits surging 68.7% year-over-year this quarter.
TSMC's operating profit margin for the third quarter reached 58.7%, exceeding the upper limit of its previously provided guidance of 58%. This highlights TSMC's strong pricing power amid rising semiconductor demand driven by the AI boom.
TSMC stated on its earnings call that it expects fourth-quarter revenue to range between $52.3 billion and $54.3 billion. Based on the midpoint of this guidance, this represents a 14% sequential increase and a significant year-over-year growth of 58%.
To continue increasing investments and meet growing customer demand, TSMC stated that its capital expenditures from 2026 to 2028 will be significantly higher than in the previous three years.
SemiAnalysis analyst Slavan Kondojara stated via email that TSMC’s stronger-than-expected earnings and raised full-year revenue guidance reflect ongoing demand for advanced chips that continues to outpace the company’s production capacity; the significant increase in capital expenditures also indicates the company’s confidence in sustained industry growth over the coming years.
TSMC stated that its fourth-quarter business will be supported by strong demand for advanced chip manufacturing processes, including the ramp-up of 2-nanometer process capacity.
Kundu Jia also noted that TSMC is taking a cautious approach to capacity expansion; chip manufacturers assess whether customers have sufficient funding and the necessary supporting components to deploy AI systems. “Even after completing these checks, TSMC still states that market demand far exceeds its production capacity,” he added, underscoring the robustness of AI industry development and ensuring that investment decisions fully consider customers’ actual ability to bring chip products to market.
This quarter, 7-nanometer and more advanced processes contributed 79% of TSMC’s wafer revenue. Among these, 3-nanometer chips accounted for the highest share at 33%, followed by 5-nanometer and 7-nanometer chips.
By application platform, high-performance computing accounted for the highest revenue share at 68%, followed by smartphones at 21%. The automotive segment posted the fastest quarter-over-quarter growth, increasing by 23%.
TSMC stated that the growing adoption of agent AI and open-source AI models is sustaining strong demand for AI chips. These technologies lower the barrier to using AI, further driving market demand for advanced semiconductors.
The company's free cash flow for the third quarter surged to NT$476.56 billion, compared to NT$139.38 billion in the same period last year.
TSMC also noted that demand for processors driven by AI acceleration, agent-based AI applications, and networking equipment continues to rise, with semiconductors playing an increasingly critical role in the global AI supply chain.
TSMC's second wafer fab in Arizona has completed civil construction and is now undergoing equipment installation, with mass production expected in the third quarter of 2027, slightly ahead of the original schedule.
TSMC's board approved a cash dividend of NT$7 per share for the second quarter. In its second-quarter earnings report released in July this year, TSMC announced its expansion plan in the United States, with the total planned investment for the Arizona project reaching $265 billion.
Additionally, TSMC is not limited to Arizona and is evaluating the possibility of investing in a factory in Texas to further expand its manufacturing capacity in the United States.