Net profit surged 68.7%, why did TSMC fall for two consecutive days?

NEXT PICK · Market Insights

Net profit surged 68.7%, why did TSMC fall for two consecutive days?

Friday, October 16, 2026

On October 15, TSMC delivered an almost flawless third-quarter report: revenue of $46.72 billion, up 41.2% year-on-year, net profit surged 68.7% year-on-year, and even the fourth-quarter guidance was higher than market consensus.

However, the stock price fell for two consecutive days, closing at $412.61 on October 16, a daily drop of another 2.28%. The $2.14 trillion market value evaporated by hundreds of billions in a single day, and the price-to-earnings ratio (P/E) fell to 26.74 times.

A company with nearly 70% profit growth can only have a P/E ratio below 27x? Is the market mistaken, or is it seeing something beyond the financial report?

Latest price $412.61 ▼ -2.28%

Revenue for the third quarter $46.72 billion ▲ +41.2% YoY

Guidance for the four seasons $52.3–54.3 billion ▲ 4%-8% above consensus

Almost all AI chips worldwide have to pass through this gate

TSMC was founded in 1987 and headquartered in Hsinchu, Taiwan. It doesn't design chips, but builds chips for others—NVIDIA, Apple, Broadcom, AMD, Microsoft—all its clients. Products ultimately flow to high-performance computing (HPC), AI accelerators, smartphones, IoT, and automotive electronics.

The most noteworthy aspect of the third-quarter report is the process structure

7nm and more advanced processes contribute 79% of wafer revenue, with 3nm at 33%, 5nm at 28%, and the newly mass-produced 2nm process jumping from 3% in Q2 to 8%. This means that almost every dollar it earns comes from a segment of process that competitors can't catch.

TrendForce data shows that in Q2 2026, TSMC will capture 72.5% of the global wafer foundry market share, with over 90% of advanced processes at N2 and below. Combined with CoWoS-L advanced packaging, it sells not just wafers but an entire AI chip shipping channel.

If the AI wave is like a gold rush, NVIDIA selling shovels, then TSMC is the only blacksmith that can craft good shovels—customers wanting to switch to blacksmiths must pay more than 18 months of tape-out re-validation, who dares to switch back easily?

Research reports say valuations can't be calculated, but the market has already given the answer

The valuation snapshot in the original research report is almost blank

Anchors such as price-to-earnings ratio, price-to-sales ratio (P/S), price-to-book ratio, enterprise value multiple, free cash flow yield, and return on equity were not found, and market capitalization was mistakenly recorded as over $200 billion, so a clear valuation conclusion cannot be given.

Fill in this puzzle with the latest publicly available data

A stock price of $412.61 translates to earnings per share of $15.43, a price-to-earnings ratio of 26.74 times, a market cap of $2.14 trillion, and a Beta of 1.24. Compared to a price-to-earnings ratio of around 33 times a week ago, the stock price has pulled back and adjusted earnings upward, significantly compressing valuations.

And the profitability itself is quite solid

Q3 gross margin was 66.4%, operating margin 58.7%, net margin 51.1%, meaning $51 in revenue was pocketed for every $100 earned. So here's the question: For a manufacturing company with a net margin exceeding half its value, is a 26x P/E ratio expensive or cheap?

Cash flow: Knows how to make money, and also knows how to spend it

What truly makes the market hesitate is capital expenditure (CapEx). TSMC maintains a budget of $60 to $64 billion for 2026, spending $13.84 billion in the third quarter alone, and management has made it clear that investment from 2026 to 2028 will be significantly higher than in the past three years.

The report worries that, in a high-interest interest environment, such massive investments with long payback cycles will erode free cash flow or even create financing pressure. Due to the lack of detailed free cash flow for nearly four quarters, this question can only be answered in the next annual report.

On the other hand, the report mentioned that on October 8, six executives collectively bought company stock, with insiders casting real money as a vote of trust—those who spend money know best whether it's worth it.

Fundamentals are breaking through, but the stock price is gasping halfway up the mountain

The research report defines TSMC as in a breakthrough phase

Q4 guidance is $52.3 billion to $54.3 billion, 4%-8% higher than the market consensus of $50.35 billion, with full-year revenue growth expected to reach 44%; AI/HPC advanced process supply remains tight, NVIDIA's high-end GPU shipments in 2026 are expected to grow about 30% year-on-year, and packaging capacity remains tight.

But the technical side tells a different story. The stock price has fallen below the 50-day moving average, showing a clear retracement from the 52-week high, but still about 4.6% above the 200-day moving average. The RSI (14) has dropped to 34.2, approaching the oversold zone.

Fundamentals are accelerating, stock prices are slowing: is the market denying this phase, or just taking a breather?

Samsung, Intel, and SMIC—who can break this wall?

Samsung is the most direct competitor in advanced processes, with both sides head-to-head at N2 and below, but TSMC holds over 90% of the market share in AI/HPC advanced processes, making this competition more like a chase than a direct showdown.

Intel is taking a different path, competing for CoWoS territory with EMIB-T packaging technology, but its own advanced process capacity and yield remain to be proven. What truly requires long-term vigilance is SMIC: its Q2 market share rose to 5.4%, already approaching Samsung, and is exerting ongoing price and share pressure on mature processes.

Interestingly, GlobalFoundries has now become a supplier to TSMC, providing silicon interconnect devices, indicating that when production capacity is extremely tight, this dominant player also needs to outsource some processes.

The moat is not a river, but a series of concentric circles: the innermost ring is a 2nm process, the middle is CoWoS-L packaging, and the outermost ring is the customer's conversion cost of over 18 months. To get into the city, competitors have to swim through layer by layer.

Of the $73.8 billion quarterly pie, it took 70%.

Data cited in the research report shows that in Q2 2026, the global foundry market size will be about $73.8 billion, with the top ten foundries' combined revenue growing 11.5% quarter-on-quarter to $53.49 billion, setting a new record. TSMC alone took 72.5% of the share.

Driving this pie to continue expanding is AI: the 2026 AI server shipment forecast has been raised to nearly 31% year-on-year, with cloud service provider (CSP) capital expenditures surging by about 90%. The report predicts that AI, HPC, and other fields will continue to grow strongly over the next three years, but also cautions that capacity utilization for mature processes has risen to about 90%. If AI demand marginally slows, overcapacity may occur in 2027-2028.

The pro-viser holds five cards in their hands

The optimists' logic is straightforward: demand outpaces supply, and TSMC happens to stand on the scarce end of supply.

▲ Bull Case

The bears are watching the other side of the ledger

The pessimists do not deny TSMC's strength; they only doubt: has the best news already been written into the price?

▼ Bear Case

In the coming months, these three factors will determine the direction of the stock price

The earnings report has been finalized, and the market will next test whether the guidance can turn into real cash and whether new capacity can be launched on time:

•	Q4 2026 earnings report (expected January 2027): Confirmed full-year 44% growth and guidance above $52.3 billion, positive impact but high expectations
•	Arizona Plant's Advanced Process Ramp-Up (2026-2027): Success or failure directly affects overseas capacity narratives, with high impact and a two-way approach
•	CoWoS-L packaging capacity expansion meets AI orders (2027): easing supply bottlenecks, moderate impact, but positive side
•	The options market saw a $13.8 million bearish order: more like a hedge protection before and after institutional earnings reports. If there is no follow-up, selling pressure may be one-off

It rose 38% in one year, but in the past month it has been giving back

Over the past 12 months, TSM has returned 38% cumulatively, driven by the ongoing frenzy in AI infrastructure investment and TSMC's exclusive advantage in CoWoS-L advanced packaging; The 52-week range rose from $266.82 all the way up to $487.47.

The turning point came in the past month

The stock returned -3.8% on the 30th, having already fallen about 7% from its peak before the earnings report, and then fell for two consecutive days—1.8% on October 15 and another 2.28% on October 16. U.S. inflation data is hot, market concerns about the sustainability of AI investment financing, and increased capital support have outperformed the performance expectations.

When a record-breaking financial report can't bring a price increase, the market is pricing in returns for 2028, not this quarter.

⚠️ Risk Notice • If the situation in the Taiwan Strait escalates, it could impact Taiwan's production capacity continuity and the global chip supply chain • The top five clients account for a high proportion of revenue, and a single major client cutting orders will significantly impact revenue • If yield falls short of expectations when migrating from 2nm to 1.6nm, Samsung and Intel may narrow the gap • Overseas expansion faces labor shortages, supply chain restructuring, and uncertainties in subsidies • If cloud providers' capital expenditures slow, AI accelerators' compound growth forecasts of over 50% will face downward revision

🟡 Neutral Performance and moat are impeccable, but massive capital expenditures and macro headwinds suppress valuations.

💬 Discussion Good company confirmed, good price still needs one verification; Real-time buy and sell positions, post TSM on the official account for viewing.

Data source

•	Source: NextPick real-time snapshot + TSMC official earnings report and US SEC announcement + TrendForce industry data + mainstream financial media coverage.