TSMC Q3 2026 Earnings: Revenue Exceeds Guidance, 2nm Production Expands

Taiwan Semiconductor Manufacturing Company (NYSE: TSM) reported its third-quarter 2026 financial results on October 15, with revenue reaching $46.72 billion and net profit reaching NT$763.06 billion. Amid sustained strong demand for advanced semiconductor manufacturing, net profit increased by 68.7% year-over-year.

Revenue for the third quarter exceeded TSMC's previous guidance range, and the company expects fourth-quarter revenue to reach $52.3 billion to $54.3 billion, indicating management's expectation of continued business growth. However, gross margin declined slightly quarter-over-quarter due to the expansion of capacity for the latest 2-nanometer (2nm) process.

This earnings report highlights a key trade-off facing TSMC: strong demand for advanced computing continues to drive record profits, but expanding capacity for next-generation processes requires significant investment and will pressure gross margins in the short term.

• Revenue for the third quarter reached $46.72 billion, a 41.2% year-over-year increase in USD, exceeding TSMC’s previous guidance of $44.6 billion to $45.8 billion.
• Net profit increased by 68.7% year-over-year to NT$76.306 billion, with diluted earnings per American Depositary Receipt (ADR) reaching $4.60.
• The gross profit margin was 66.4%, in line with prior guidance, but decreased by 1.3 percentage points quarter-over-quarter, primarily due to the initial mass production of the 2nm process.
• The 2nm process accounted for 8% of wafer revenue, up from 3% in the second quarter; advanced processes at 7nm and below collectively contributed 79%.
• High-performance computing (HPC) accounts for 68% of total revenue, with HPC revenue increasing by 22%环比.
• Q4 revenue guidance is $52.3 billion to $54.3 billion, with an expected gross margin of 65% to 67%.
• Capital expenditures for the third quarter reached $13.84 billion, with cumulative capital expenditures for the first nine months of 2026 reaching $40.64 billion.

According to TSMC's officially published Q3 2026 financial report, the consolidated revenue for the quarter ended September 30, 2026, reached NT$1.49424 trillion, equivalent to $46.72 billion.

Net profit attributable to shareholders reached NT$763.06 billion, higher than NT$452.3 billion in the same period last year.

Key financial data includes:

• Revenue: $46.72 billion, up 41.2% year-over-year and 16.2% sequentially.
• Net profit: TWD 763.06 billion, up 68.7% year-over-year and 8.0% quarter-over-quarter.
• Diluted earnings per share (EPS): NT$29.43 per common share, equivalent to $4.60 per ADR.
• Gross profit margin: 66.4%, compared to 67.7% in the second quarter and 59.5% in the third quarter of 2025.
• Operating profit margin: 58.7%, compared to 60.3% in the second quarter and 50.6% in the same period last year.
• Net profit margin: 51.1%, compared to 55.6% in the second quarter and 45.7% in the same period last year.

The results showed that TSMC's revenue and net profit both increased significantly compared to the same period last year, but its profit margin declined sequentially.

This distinction is crucial for investors. Revenue growth reflects strong demand for advanced manufacturing capacity, while changes in gross margin reveal cost pressures from scaling up new processes.

TSMC's third-quarter revenue exceeded its own guidance, and its net profit also surpassed market expectations prior to the earnings report.

The company previously expected third-quarter revenue to be between $44.6 billion and $45.8 billion. Actual revenue reached $46.72 billion, approximately $920 million above the upper end of guidance.

The operating profit margin also exceeded management expectations, reaching 58.7%, above the previously forecasted range of 56% to 58%.

However, the 66.4% gross profit margin remains within the company’s originally anticipated range of 65% to 67%.

In addition, Reuters reported that analysts had previously expected quarterly net profit to be around NT$746.3 billion, below the actual reported figure of NT$763.06 billion.

This distinction is noteworthy: TSMC's revenue exceeded company guidance, and net profit also surpassed analyst expectations, but the gross margin should not be described as "exceeding guidance."

Therefore, the better-than-expected performance this quarter primarily reflects stronger operational results, while also accounting for the anticipated costs associated with expanding advanced manufacturing processes.

TSMC's gross margin for the third quarter decreased by 1.3 percentage points from 67.7% in the second quarter to 66.4%.

According to TSMC's official Q3 management report, the sequential decline in gross margin was primarily due to gross margin dilution caused by the initial mass production of N2, or the 2nm process.

The new process requires significant equipment investment and undergoes production validation and scaling. Costs are typically higher during the initial phase of mass production, before operational efficiency is fully mature.

Therefore, TSMC's challenges include not only increasing 2nm output but also continuously improving its manufacturing cost structure as this process accounts for a growing share of revenue.

If viewed from a year-over-year perspective, the situation is different.

Despite a sequential decline in gross margin, the third-quarter gross margin was 6.9 percentage points higher than the 59.5% recorded in the same period of 2025.

This indicates that TSMC's overall profitability is significantly higher than a year ago as it enters the transition phase to its latest process node, even though initial mass production of the 2nm node has placed some pressure on the quarter's gross margin.

TSMC's 2nm process accounted for 8% of total wafer revenue in the third quarter of 2026, up from 3% in the second quarter.

This change indicates that the N2 process is becoming an increasingly important revenue source for TSMC's advanced manufacturing business.

Based on TSMC's quarterly process technology revenue mix data:

• 2nm: accounts for 8% of wafer revenue, up from 3% in the second quarter.
• 3nm: 33%, up from 30% in the second quarter.
• 5nm: 28%, compared to 33% in the second quarter.
• 7nm: 10%, compared to 11% in the second quarter.

Overall, advanced processes of 7nm and below accounted for 79% of total wafer revenue.

These ratios measure the share of each process in wafer revenue, not the share of the company’s overall revenue or the proportion of actual wafer shipments.

The rapid increase in revenue contribution from 2nm also helps explain the change in gross margin this quarter.

Although the commercial scale of this process continues to expand, initial mass production temporarily puts pressure on profitability.

The key question over the next several quarters is whether higher capacity utilization, improved manufacturing efficiency, and sustained growth in customer demand can offset these costs.

TSMC's latest guidance for the fourth quarter shows that revenue is expected to continue growing, but management anticipates gross margins will remain in a range similar to that of the third quarter.

According to the official Q3 earnings presentation and guidance from TSMC, the company expects:

• Q4 2026 revenue: $52.3 billion to $54.3 billion.
• Gross margin for the fourth quarter: 65% to 67%.
• Fourth-quarter operating profit margin: 56.5% to 58.5%.
• Assumed exchange rate: 1 USD = 31.8 TWD.

Based on the midpoint of the revenue guidance of $53.3 billion, this represents an expected sequential revenue growth of approximately 14.1% compared to $46.72 billion in the third quarter.

This guidance indicates that TSMC expects demand and revenue growth momentum to continue through the fourth quarter of 2026.

Meanwhile, the gross margin outlook of 65% to 67% also implies that revenue growth will not necessarily translate immediately into improved profitability for the manufacturing business.

As TSMC continues to invest in advanced processes, revenue growth and gross margin expansion remain two metrics that need to be observed separately.

High-performance computing (HPC) remained TSMC's largest revenue platform in the third quarter, contributing 68% of total revenue, up from 66% in the second quarter and 57% in the third quarter of 2025.

According to the company management report, HPC revenue increased by 22% quarter-over-quarter.

Revenue share from other major application platforms includes:

• Smartphones: 21%.
• Internet of Things (IoT): 4%.
• Automotive electronics: 4%.
• Consumer electronics: 1%.
• Other applications: 2%.

The increasing revenue contribution from HPC reflects the growing importance of advanced computing workloads to TSMC's business.

AI accelerators and other high-performance processors require advanced semiconductor manufacturing technologies, thus contributing to demand for cutting-edge process capacity.

However, HPC revenue does not equate to pure AI revenue. This category also includes other computing applications, so the 68% share cannot be regarded as TSMC’s separately disclosed AI revenue percentage.

For companies such as NVIDIA (NVDA) and AMD (AMD), TSMC's earnings provide additional insight into the strength of demand for advanced semiconductor manufacturing.

However, the growth of TSMC's HPC business does not directly prove the future orders or profitability of individual chip design companies.

TSMC's capital expenditure in the third quarter reached $13.84 billion, compared to $15.7 billion in the second quarter and $11.1 billion in the first quarter.

Capital expenditures through the first nine months of 2026 reached $40.64 billion.

The company's third-quarter management report also showed:

• Cash flow from operating activities: TWD 919.77 billion.
• Free cash flow: TWD 476.56 billion.
• Second-quarter free cash flow: TWD 287.36 billion.

Quarterly free cash flow improved due to increased operating cash flow and lower capital expenditures quarter-over-quarter.

These figures indicate that TSMC has generated substantial cash flow from its core operations while continuing to make large-scale investments in manufacturing capacity.

The previously announced full-year 2026 capital expenditure guidance of $60 billion to $64 billion remains an important reference point, but this range was disclosed prior to the October 15 earnings report and should not be considered the newly raised forecast.

For investors, the key question is whether demand for advanced semiconductors can be sustained to support the substantial capital investments required for technological upgrades and capacity expansion.

TSMC's third-quarter results further indicate that semiconductor manufacturers are expanding the production infrastructure needed to support advanced computing.

For **NVIDIA (NVDA)**, demand for AI accelerators is an important indirect driver of advanced process manufacturing, but TSMC's earnings report cannot directly predict NVIDIA's revenue.

For AMD (AMD), the expansion of advanced computing capacity provides further context for the long-term demand in cutting-edge processor manufacturing.

For ASML, higher production demand supports the semiconductor equipment investment cycle, but lithography equipment orders and revenue recognition still depend on their respective delivery schedules.

The connections between these companies are worth noting, but should not be overstated.

TSMC's financial disclosures indicate strong manufacturing demand and a持续 increasing share of HPC revenue, but they do not directly prove order growth, revenue contribution, or profit prospects for every company in the AI semiconductor supply chain.

Next, three factors will influence whether TSMC can sustain its current profit growth momentum.

1. Profitability of the 2nm process. The share of N2 in wafer revenue has increased to 8%, but initial mass production has diluted gross margins. Future earnings reports will help determine whether capacity expansion can improve manufacturing efficiency.

2. Sustainability of HPC demand. HPC accounted for 68% of quarterly revenue, representing a 22% sequential growth. Whether demand for advanced computing can be sustained will continue to impact TSMC’s capacity utilization and revenue structure.

3. Q4 revenue growth and capital efficiency. TSMC's Q4 revenue guidance of $52.3 billion to $54.3 billion points to further growth, but the gross margin guidance of 65% to 67% also reflects that manufacturing costs remain a key factor. Capital expenditures and free cash flow will help investors assess the financial impact of ongoing capacity expansion.

TSMC's third-quarter 2026 results demonstrated strong revenue growth, record profitability, and rapid adoption of advanced process technologies.

The core trade-off is now clearer: Mass production of 2nm supports long-term growth and HPC demand, but scaling up capacity for the latest process node may put pressure on gross margins in the short term, even as overall profits continue to rise.

How did TSMC perform in its third quarter 2026 earnings report?

TSMC reported third-quarter revenue of $46.72 billion and a net profit of NT$763.06 billion, with diluted earnings per ADR of $4.60. Net profit increased by 68.7% year-over-year.

Did TSMC's third-quarter revenue exceed its guidance?

Yes. Actual revenue was $46.72 billion, exceeding the company's previous guidance range of $44.6 billion to $45.8 billion.

What is TSMC's revenue guidance for the fourth quarter of 2026?

TSMC expects fourth-quarter revenue of $52.3 billion to $54.3 billion, a gross margin of 65% to 67%, and an operating profit margin of 56.5% to 58.5%.

Why did TSMC's gross margin decline in the third quarter?

Gross margin decreased from 67.7% in the second quarter to 66.4% in the third quarter, primarily due to gross margin dilution from the initial mass production of the 2nm process.

What percentage of TSMC's wafer revenue comes from 2nm?

The 2nm process accounted for 8% of wafer revenue in the third quarter of 2026, up from 3% in the second quarter.

What is TSMC's capital expenditure for the third quarter?

TSMC's capital expenditure for the third quarter reached $13.84 billion, with cumulative spending reaching $40.64 billion through the first nine months of 2026.

Does TSMC's 68% HPC revenue share come entirely from AI?

No. HPC includes AI-related applications and other high-performance computing products, so 68% cannot be interpreted as the separately disclosed AI revenue share.