Revenue beat guidance, profit set a sixth straight record, and the fourth quarter is guided 14% higher. Gross margin fell anyway — and nearly every AI holding in your account runs through this one plant.
KEY POINTS
Revenue hit $46.72 billion, up 41.2%, above the top of guidance.
Earnings came in at $4.60 per US share against $4.46 expected.
Gross margin fell 1.3 points to 66.4% on the 2-nanometer ramp.
High-performance computing is now 68% of revenue — the AI you own, concentrated.
TSMC’s gross margin fell 1.3 points last quarter. To 66.4%.
That happened in a quarter where revenue beat its own guidance, profit hit a record for the sixth straight time, and the company guided the current quarter 14% higher.
And the margin fell anyway, because the next generation of chips costs money before it makes any.
Nearly every AI holding in your account runs through this one supplier, whether you picked it or not.
What TSMC Actually Reported
What your AI exposure actually rests on, reported Thursday:
Earnings $4.60 per US share, against $4.46 expected
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Net profit up 68.7%, a record for the sixth consecutive quarter
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Gross margin 66.4%, down 1.3 points from the second quarter
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Fourth-quarter guidance $52.3 to $54.3 billion, about 14% higher
Operating margin came in at 58.7%, above the top of the company’s own 58% guidance. Above the top.
And the stock fell more than 5% after hours.
Beat on revenue, beat on earnings, raised the guide, exceeded its own margin forecast on the operating line — and still sold off, which tells you the price already assumed all of it.
What you own in AI sits downstream of these numbers, and your fund manager won’t phrase it that way.
What The Margin Drop Means
Gross margin fell because of 2-nanometer.
The newest process is ramping, and a new process always costs more per wafer at the start — the tools are new, the yields are still improving, and the volume isn’t there to spread the fixed cost. 2nm reached 8% of wafer revenue this quarter. Three-nanometer is 33%.
But the dilution is arithmetic rather than weakness. A company building the next generation pays for it a year before it pays back, and you own the gap.
Capital spending ran $13.8 billion in the quarter alone.
And free cash flow still rose to NT$476.6 billion from NT$139.4 billion a year earlier. Spending that much and generating that much at once is unusual, and it’s the single best argument for the shares.
Your AI holdings depend on this ramp working, and none of them will tell you so directly.
Both Cases Sit In One Number
High-performance computing is now 68% of revenue, after rising 22% from the prior quarter.
That single line carries the bull case and the bear case at once, and you hold both.
The bull reading: management says the supply gap is still quite big, and demand for leading-edge silicon keeps outrunning what TSMC can build. The fourth-quarter guide of up to $54.3 billion says customers have already committed.
But the bear reading is the same sentence read differently. Smartphones are 21% of revenue and falling as a share, which is the phone in your pocket losing relevance to the chip business. Digital consumer electronics is 1%. A company that was diversified across the whole electronics industry is becoming one that sells mostly to AI buyers, which is wonderful for as long as AI buyers keep ordering.
And return on equity hit 45.5%, which is the number you get when concentration works.
Until it doesn’t.
What To Watch From Here
Watch your margin line. Not revenue.
Fourth-quarter gross margin is guided to 65% to 67% — the same range as this quarter, which means management expects the 2nm dilution to be absorbed rather than to deepen. Watch whether that holds when you read the January report.
For Band 1 holders, this is the clearest single read on whether the AI buildout you own is still paying. For Band 3, a small dividend in Taiwan dollars isn’t income.
Everything you own downstream reports next. This one reported first.
What to Watch
Capital spending is the thing to track, not the headline. TSMC put $13.8 billion into plant in three months and guides fourth-quarter revenue up 14% — if that revenue arrives and the margin range holds, the spending was right and your position was too.
But the Fed decides October 27 and 28, with hike odds at 44% after Wednesday’s print, and October CPI follows on November 10.
If either the revenue or the margin slips, you find out in January, not before.
