TSMC Net Profit Surges 68.7% to a Record NT$763.06 Billion as AI Demand Outstrips Supply, but the 2nm Ramp Eats Into Margins

TSMC reported a sixth consecutive record quarter on Thursday, with third-quarter net income jumping 68.7% year over year to NT$763.06 billion — roughly $24 billion at current exchange rates — on consolidated revenue of NT$1.49 trillion, up 50.9% annually. In US dollar terms, revenue reached $46.72 billion, up 41.2% year over year and 16.2% from the second quarter. Diluted EPS came in at NT$29.43, or $4.60 per ADR unit.

The headline number came with a wrinkle: gross margin slipped to 66.4%, down 1.3 percentage points from the second quarter's 67.7% and slightly below the 67.1% analysts had penciled in. The company attributed the dip to the cost of ramping 2-nanometer production faster than planned and to the rising share of overseas fabs, which carry higher early-stage costs. Operating margin eased to 58.7% from 60.3%, while net profit margin held at a remarkable 51.1%.

The technology mix shows how quickly the transition is happening. 2-nanometer wafers accounted for 8% of quarterly wafer revenue in their first meaningful quarter of contribution, joining 3nm at 33% and 5nm at 28% — meaning 79% of TSMC's revenue now comes from advanced nodes at 7nm or below. That mix is the direct result of AI accelerator demand that chief executive C.C. Wei described as still far outstripping what the company can produce.

The guidance is where the print turned aggressive. TSMC told investors to expect fourth-quarter revenue of $52.3 billion to $54.3 billion, well above the roughly $50.5 billion consensus, implying about 14% sequential growth at the midpoint against normal seasonality. Management also raised its 2026 full-year revenue growth guidance in US dollar terms from "slightly above 40%" to 44%, and held its capital expenditure target at $60 billion to $64 billion for the year.

Wei said on the earnings call that the company sees no signs of AI demand slowing, and that customer demand for advanced-process chips remains well above TSMC's supply capacity. He noted the company has been sending teams to inspect data center construction sites in the United States to assess buildout progress and power availability firsthand. Management also suggested the mid-50% compound annual growth rate it previously forecast for AI accelerator revenue through 2029 could ultimately prove conservative.

The earnings call also touched on the Terafab question. Wei confirmed discussions about the Musk-linked Texas venture remain active, but drew a firm line: the fab must be operated by TSMC itself, pushing back on the idea floated earlier that TSMC might simply lease floor space inside a Musk-operated facility. Intel has separately been engaged on technology development for the project.

The record print landed on a rough day for markets — Taiwan's benchmark fell more than 1,650 points Thursday as US inflation data stoked rate worries, and debt-laden neoclouds have been rattling investors for weeks. But the supply-side math here is unforgiving: even as capital markets question AI financing structures, the company that makes most of the world's leading AI chips says demand still exceeds everything it can fabricate, and it just told investors to expect an even better fourth quarter.