TSMC Reports Record Q3 Profit of $23.55 Billion as AI Demand Drives Growth and US Expansion Plans

Taiwan Semiconductor Manufacturing Company (NYSE:TSM) reported record third-quarter earnings on Thursday, exceeding market expectations as strong demand for advanced semiconductors used in artificial intelligence continued to support revenue growth.

The world’s largest contract chipmaker also confirmed that it was considering additional manufacturing facilities in the United States, including potential locations in Texas, as it seeks to expand production capacity.

Net profit increased nearly 69% year-on-year to NT$763.06 billion ($23.55 billion) in the three months ended 30 September, exceeding the NT$746.3 billion consensus estimate based on Reuters/LSEG data.

Revenue rose 50% to NT$1.49 trillion, reflecting continued demand for advanced chips from AI infrastructure providers and other technology customers.

TSMC reported a gross margin of 66.4%, an operating margin of 58.7% and a net profit margin of 51.1%.

The results marked the company’s sixth consecutive quarter of record earnings and its eleventh consecutive quarter of growth.

TSMC Considers Texas Manufacturing Facilities as Capacity Expansion Accelerates

TSMC is evaluating further manufacturing investment in the United States as demand for advanced semiconductor production continues to increase.

During the company’s post-results webcast, Chief Executive C.C. Wei confirmed that TSMC had examined potential locations beyond its existing manufacturing operations in Arizona.

“We’re working very hard to increase our capacity in the U.S.,” Wei said in response to an analyst’s question.

He added that Texas was among the locations being considered for additional facilities.

Discussions remain ongoing regarding the structure of any new operations, including whether TSMC would develop and operate the facilities independently or collaborate with external partners.

One potential arrangement mentioned involved Elon Musk’s Terafab semiconductor manufacturing initiative.

No final decision on the location, ownership structure or timetable for additional facilities was disclosed.

The possible expansion forms part of TSMC’s broader effort to increase production capacity as demand for advanced computing chips continues to exceed existing supply capabilities.

Capital Spending Expected to Rise as Expansion Pressures Margins

Chief Financial Officer Wendell Huang warned that TSMC’s manufacturing expansion would continue to affect profitability margins as the company invests in additional capacity in Taiwan and overseas.

Huang estimated that capacity expansion would dilute gross margins by approximately two percentage points in 2026.

He also indicated that the impact from overseas manufacturing facilities could become more pronounced in subsequent years.

For the fourth quarter, TSMC expects its gross margin to decline by at least 0.4 percentage points.

The company anticipates substantially higher investment requirements in the coming years as it responds to continued demand from artificial intelligence customers.

Huang said capital expenditure would be “significantly higher” in future periods, reflecting the need to increase semiconductor manufacturing capacity.

TSMC maintained its 2026 capital expenditure budget of between $60 billion and $65 billion.

However, Huang did not provide a specific forecast for how much additional production capacity the company expects to bring online over the coming months.

The spending plans illustrate the financial commitments required to support demand for advanced semiconductor manufacturing, even as higher investment costs create pressure on near-term margins.

AI Demand Supports Strong Revenue Outlook

TSMC expects revenue of between $52.3 billion and $54.3 billion for the forthcoming reporting period, representing approximately 58% year-on-year growth, according to the company’s guidance.

Chief Executive C.C. Wei separately forecast that full-year 2026 revenue would increase by approximately 44% in US dollar terms.

The projections reflect continued demand for advanced chips used in artificial intelligence computing, data centres and related applications.

“The AI market continues to be very strong… we observe increasing AI demand, fueled by the increasing adoption of agentic AI,” Wei said.

He also highlighted the growing importance of semiconductor technology within the wider artificial intelligence industry.

“The value of semiconductors in the global AI chain is expected to continue to increase,” Wei added.

The company’s outlook suggests that investment in advanced AI systems remains an important driver of semiconductor demand despite broader concerns about technology sector valuations.

Advanced 2nm and 3nm Chips Contribute to Revenue Growth

TSMC’s advanced manufacturing technologies continued to account for a significant proportion of its wafer revenue during the third quarter.

The company reported that chips manufactured using its 2-nanometre process represented 8% of total wafer revenue.

Its 3-nanometre technology accounted for a further 33%.

These advanced production processes are used to manufacture high-performance semiconductors for applications requiring substantial computing power and improved energy efficiency.

TSMC’s manufacturing capabilities have positioned it as a major supplier to companies developing advanced AI processors.

NVIDIA Corporation (NASDAQ:NVDA) remains among its largest customers, reflecting the importance of TSMC’s manufacturing capacity to the global AI computing industry.

The company’s results are closely monitored as an indicator of semiconductor demand across the wider technology sector.

Its latest earnings followed strong results from semiconductor equipment manufacturer ASML Holding (EU:ASML), which also reported continued demand associated with artificial intelligence earlier in the week.

Record Earnings Contrast With Weakness in Semiconductor Shares

TSMC’s results came during a period of considerable pressure on semiconductor and artificial intelligence-related equity valuations.

Technology stocks have faced selling pressure as stronger US inflation figures increased expectations of further Federal Reserve interest rate rises.

Higher borrowing costs have raised concerns about the financial implications of the substantial infrastructure investment required to support AI development.

The market reaction has been particularly significant for companies relying heavily on debt to finance data centres, computing infrastructure and other expansion projects.

Against that backdrop, TSMC’s earnings demonstrated continued demand for advanced semiconductor production, although its own expansion programme is expected to weigh on margins.

For investors, the company’s ability to increase manufacturing capacity while managing capital expenditure and profitability will remain an important consideration as AI-related demand continues to grow.

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