Strong AI demand drives Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR (TSM.US) earnings beat expectations; Wall Street rushes to raise target prices, with the highest seen at $600.

Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR (TSM.US), the world's largest wafer foundry, reported third-quarter 2026 results and fourth-quarter guidance that both beat market expectations, further easing investor concerns about a slowdown in artificial intelligence (AI) infrastructure investment. Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR management said it has not yet seen any signs of AI demand cooling, and customer demand for advanced-process chips still far exceeds the company's supply capacity. The strong growth outlook prompted Wall Street institutions including Needham and Susquehanna to raise their target prices, while Bernstein reiterated its "Outperform" rating and maintained a target price of $554. According to a Bernstein research report released on October 15, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's third-quarter revenue reached NT$1.494 trillion, up 17.6% quarter-on-quarter, above the market expectation of NT$1.473 trillion; net profit was NT$763.1 billion, up 8% quarter-on-quarter, also exceeding market expectations. Earnings per share reached NT$29.43, above the market expectation of NT$28.91. However, affected by the ramp-up of 2-nanometer advanced process capacity and overseas expansion, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's third-quarter gross margin fell from 67.7% in the previous quarter to 66.4%, slightly below the market expectation of 67.1%. The operating margin also declined from 60.3% to 58.7%. Despite the margin decline, Bernstein believes that Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's results still reflect strong market demand and excellent execution capabilities, with the short-term gross margin pressure partly coming from capacity ramp-up costs driven by better-than-expected demand for the 2-nanometer process. What excited the market even more was Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's outlook for future growth. The company expects fourth-quarter revenue to reach $52.3 billion to $54.3 billion, far above the previous consensus estimate of about $50.5 billion. Based on the midpoint of the guidance, fourth-quarter revenue is expected to grow about 14% quarter-on-quarter, significantly stronger than normal seasonal performance. At the same time, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR raised its full-year 2026 dollar revenue growth forecast from slightly above 40% to 44%, indicating that AI chip demand continues to drive accelerated growth in the company's performance. AI demand still far exceeds supply capacity; advanced process expansion accelerates Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR CEO C.C. Wei said at the earnings conference call that there are currently no signs of AI demand slowing. Wedbush analyst Matt Bryson noted that Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR management described current AI demand as "extremely strong," and said the company not only continues to communicate with customers but has also dispatched dedicated teams to conduct on-site inspections of U.S. data center construction progress and power supply conditions to assess the sustainability of AI infrastructure expansion. Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's investigation results show that related construction progress is generally smooth so far, while customer demand remains significantly higher than the capacity the company can provide. It is worth noting that Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR previously expected that the compound annual growth rate of AI accelerator-related revenue from 2024 to 2029 would reach the mid-to-high 50% range. This time, management further stated that the actual growth rate could be higher than previously forecast. Needham analyst Charles Shi believes that this statement means the AI chip market still has growth potential beyond current expectations. In addition to AI accelerators, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR also specifically emphasized growth in demand for central processing units (CPUs) and networking chips. Bernstein pointed out that the proliferation of AI agents and open-source models is improving AI application efficiency, lowering the threshold for enterprises to adopt AI technology, and thereby driving expansion in advanced process demand. At the same time, the CPU computing power required by AI agents, as well as the continuously growing network connectivity demand between data centers, are also becoming new growth drivers. In terms of third-quarter business performance, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's high-performance computing (HPC) revenue grew 22% quarter-on-quarter, smartphone revenue grew 10%, IoT revenue grew 5%, and automotive electronics revenue grew 23%. Bernstein data shows that third-quarter high-performance computing revenue reached about $32 billion, accounting for 68% of the company's total revenue, while the smartphone business revenue share has dropped to 21%, highlighting that AI and high-performance computing are increasingly becoming Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's most important growth engines. 2-nanometer capacity expected to double next year; capital expenditure may increase further Facing continuously growing advanced process demand, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR is accelerating global capacity expansion. Susquehanna analyst Mehdi Hosseini pointed out that Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR expects annual 2-nanometer process capacity to more than double in 2027. Bernstein's research report shows that the 2-nanometer process already contributed about 8% of Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's wafer revenue in the third quarter, reflecting that this latest process is rapidly entering the commercial volume production stage. In terms of the 3-nanometer process, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR plans to add four wafer fabs, two in Taiwan, one in the United States, and one in Japan. Susquehanna noted that Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR will also add a 3-nanometer wafer fab in Tainan, Taiwan, expected to enter mass production in the first half of 2028, while another fab is already scheduled to begin production in the first half of 2027. U.S. expansion plans are also accelerating. Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's second wafer fab in Arizona is expected to begin mass production in the third quarter of 2027, slightly earlier than previously scheduled. At the same time, the company is evaluating building a new production base in Texas. In terms of more advanced process technology, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's A14 process is planned to start risk production in 2027 and enter mass production in 2028. Susquehanna said that the early development progress of this process is even faster than that of the 2-nanometer process at the same stage. Advanced packaging technology is also continuing to make breakthroughs. Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR currently has advanced packaging production capability for five-times reticle size and is advancing toward larger packaging specifications of nine-times and fourteen-times reticle size to meet future AI chips' demand for higher computing power and larger packaging area. In terms of capital expenditure, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR maintained its 2026 investment plan of $60 billion to $64 billion unchanged, but management emphasized that capital expenditure from 2026 to 2028 will increase significantly compared with the past three years, and the increase may further expand. Needham expects Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's 2027 capital expenditure to reach $90 billion and further increase to $100 billion in 2028, to support additional 3-nanometer capacity and potential Texas expansion plans. Bernstein believes that despite continued increases in capital expenditure, as revenue growth accelerates, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's capital expenditure as a proportion of revenue is still expected to gradually decline. In addition, Bernstein's research report also mentioned discussions between Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR and Tesla, Inc. (TSLA.US) CEO Musk regarding a Terafab wafer fab. Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR confirmed that the two sides had communicated but emphasized that the wafer fab must be operated by Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR itself. Bernstein therefore judged that it may be difficult for the two sides to reach a cooperation agreement, although whether the Texas new fab evaluation is related to this project remains unclear. Wall Street raises target prices, with the highest seen at $600 The strong results and expansion prospects prompted multiple Wall Street institutions to become more bullish on Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR. Needham maintained its "Buy" rating on Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR and raised its target price from $530 to $560. The firm's analyst Charles Shi said that 2027 may become an important year in which Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR sets a new revenue record while maintaining high-speed growth. Susquehanna sharply raised Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's target price from $430 to $600. The firm believes that 2-nanometer and 3-nanometer capacity expansion, advanced packaging technology upgrades, and accelerated construction progress at U.S. production bases will further consolidate Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's competitive advantage in the global advanced wafer foundry market. Wedbush also reiterated its "Outperform" rating, believing that Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's judgment on AI demand is highly credible, especially since the company has incorporated data center power, memory chips, and other potential supply chain bottlenecks into its demand assessment. Bernstein maintained Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's U.S. stock target price of $554 and "Outperform" rating, corresponding to about 29% upside from its October 15 stock price of about $430. The firm also maintained Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's Taiwan stock target price of NT$3,300, implying about 35% potential upside compared with the closing price of NT$2,440 that day. Bernstein expects Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's 2026 earnings per share to reach $17.18 and further grow to $22.48 in 2027. The firm pointed out that compared with three months ago, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's demand environment has improved significantly, and the company's prudent capacity expansion and efficient execution in continuously responding to customer demand are expected to drive long-term compound earnings growth. However, not all institutions are equally optimistic about Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's prospects. GF SEC analyst Jeff Pu believes that Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's third-quarter results were overall between in line and slightly below expectations, and therefore maintained a "Hold" rating. The firm expects that driven by continued growth in demand for AI accelerators, CPUs, and networking chips, as well as moderate price increases for advanced and mature processes, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's 2027 revenue is expected to grow 39% year-on-year. But the firm also warned that capacity ramp-up for 2-nanometer and A14 processes, overseas expansion, and rising equipment costs may offset some of the margin improvement brought by revenue growth, keeping Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's gross margin relatively stable overall from 2027 to 2028. In addition, GF SEC believes that Intel Corporation's (INTC.US) EMIB-T advanced packaging technology still poses competition to Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's CoWoS technology. It is worth noting that although Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR delivered strong financial results and raised its full-year growth forecast, its U.S. shares still fell more than 2% in early trading on Thursday, reflecting that investor concerns about AI industry valuations, capital expenditure, and potential investment returns have not yet dissipated. Intel Corporation and GlobalFoundries (GFS.US) shares also both fell more than 2%, indicating overall pressure on the semiconductor sector. However, Bernstein believes that the signal from Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's latest results remains clear: there has not yet been a notable slowdown in AI infrastructure construction, advanced process demand continues to exceed supply, and Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR is consolidating its core position in the global AI chip supply chain through continuous capacity expansion.