TSMC reported record third-quarter results on Oct. 15, yet its stock still slipped and is down 7% over the past month. A small sequential dip in gross margin, record capex and worries about AI demand weighed on sentiment.
TSMC, the world's top contract chipmaker, reported third-quarter revenue and net profit up 50% and 69%, both at record highs. However, the stock slipped after the report and is still down 7% over the past month.
AI chips drive the growth
TSMC makes advanced chips for fabless chipmakers including Nvidia, AMD and Broadcom. In Q3, 68% of its revenue came from high-performance computing chips, and that segment's revenue rose 22% sequentially.
The 3nm node generated a third of revenue, while the newest 2nm node contributed 8%. For the full year, TSMC expects revenue to rise 44% in USD terms, up from its prior outlook for at least 40% growth.
Margin dip and spending raise concerns
Several issues weighed on the shares. TSMC's gross margin of 66.4% matched its guidance of 65%-67% and expanded from 59.5% a year earlier, but it slipped from 67.7% in the second quarter. The company ramped up 2nm production and expanded its overseas fabs during the quarter.
Because capital expenditure is already set to rise 47%-56% from 2025, the margin dip likely rattled some investors. TSMC did not raise its full-year capex target of $60 billion to $64 billion.
The Motley Fool's Leo Sun also points to the risk of an AI slowdown. Rising interest rates and other macro headwinds could throttle near-term growth, and HPC growth could cool if hyperscalers such as Amazon and Microsoft rein in AI spending.
Expectations were already high
The stock had risen 39% year-to-date before the report, so a lot of optimism was already baked in. From 2025 to 2028, analysts expect TSMC's revenue and EPS to grow at CAGRs of 36% and 42%, and the stock trades at 16 times next year's earnings.
Source: The Motley Fool
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