Taiwan Semiconductor Manufacturing Company (NYSE: TSM) reported earnings of $4.60 per ADR for the third quarter ended Sept. 30, 2026, against a $4.45 analyst estimate, on revenue of $46.06B versus $45.67B expected. In NT$ terms, net income rose 68.6% from the year-ago quarter and revenue rose 50.9%. Management cited "strong demand for our leading-edge process technologies," and CFO Wendell Huang said high-performance computing (HPC) made up 68% of revenue. Shares were down 2.28% on Oct. 16, 2026.
Key facts
- Oct. 15, 2026: TSMC reported Q3 EPS of $4.60 per ADR versus a $4.45 estimate (a $0.15 beat, 3.4%). Revenue was $46.06B versus $45.67B expected (a $392.5M beat, 0.9%).
- Year-over-year (quarter ended Sept. 30, 2026 vs. Sept. 30, 2025), in NT$ terms: revenue grew 50.9% and net income grew 68.6%.
- Q4 2026 guidance (CFO Wendell Huang, Oct. 15 call): revenue between $52.3B and $54.3B, gross margin between 65% and 67%.
- Oct. 16, 2026: the stock was at $412.61, down 2.28% on the latest quote. Its 52-week range is $266.82 to $487.47.
- Next report: Jan. 21, 2027. Analysts expect EPS of $4.74 and revenue of $52.26B.
A note on currency and per-share figures: TSMC reports its financial statements in New Taiwan dollars (NT$), which is why the statement figures look much larger than the U.S.-dollar headline numbers. The EPS and revenue comparisons against analyst estimates are in U.S. dollars. The $4.60 EPS and the NT$147.15 diluted EPS are both per ADR. CFO Wendell Huang said on the call that EPS was TWD 29.43 per common share, and 147.15 is five times 29.43, so each ADR represents five common shares.
What happened
TSMC beat on both lines, though the revenue beat against estimates was small. TSMC itself reported Q3 revenue of $46.7 billion, which Huang and Wei both said was above the high end of its third-quarter guidance. The estimate comparison here uses FMP's $46.06B figure. The bigger story is the size of the year-over-year jump. In NT$ terms, revenue grew 50.9% and net income 68.6% from the third quarter of 2025. Profit grew faster than sales because margins widened. Gross margin (the share of each sales dollar left after making the chips) rose to 66.4% from 59.5%. Operating margin (what is left after running costs too) rose to 58.6% from 50.6%.
Management pointed to the following drivers:
- High-performance computing (HPC), the category that includes AI chips, made up 68% of revenue, CFO Wendell Huang said on the Oct. 15 call.
- Advanced chips (7-nanometer and smaller, the most complex to build) were 79% of wafer revenue.
- The newest 2-nanometer process (N2) was 8% of wafer revenue in its early ramp. N3 was 33%, N5 was 28% and N7 was 10%.
- Smartphone chips were 21% of revenue and rose 10% from the prior quarter.
- Sources of AI demand that management named: agentic AI (software that carries out tasks on its own), open-source AI models, AI accelerators, AI-focused CPUs and networking chips.
The five-quarter trend
| Quarter ended | Revenue (NT$) | Gross margin | Operating margin | Net income (NT$) | |---|---|---|---|---| | Sept. 30, 2025 | 989.92B | 59.5% | 50.6% | 452.30B | | Dec. 31, 2025 | 1.06T | 62.3% | 53.9% | 510.52B | | Mar. 31, 2026 | 1.13T | 66.2% | 58.0% | 572.48B | | June 30, 2026 | 1.27T | 67.7% | 60.3% | 706.56B | | Sept. 30, 2026 | 1.49T | 66.4% | 58.6% | 762.65B |
Revenue and net income rose in every one of the five quarters. Margins rose three quarters in a row before slipping in the latest one: gross margin fell from 67.7% to 66.4% and operating margin from 60.3% to 58.6%. Management has tied margin pressure to the 2-nanometer ramp and to its overseas factories, which cost more to run. The company said overseas fabs currently dilute margins by closer to 2%, and that this could widen to 3%-4% in the next few years. Management expects productivity gains and capacity optimization to partly offset the drag in Q4.
Cash flow also improved. Free cash flow (cash left after the money spent on factories and equipment) was NT$510.13B in the latest quarter, the highest of the five. It was NT$138.40B a year earlier and NT$284.42B in the June quarter. Operating cash flow was NT$951.76B, and capital spending was NT$441.63B, lower than the NT$498.95B of the prior quarter. TSMC paid NT$155.11B in dividends and made no buybacks in any of the five quarters.
The balance sheet is strong. Cash and short-term investments were NT$4.01T against total debt of NT$981.30B. FMP separately reports net debt of -NT$2.63T, which implies net cash of about NT$2.63T on what appears to be a narrower cash measure that excludes short-term investments. Shareholders' equity was NT$6.98T. Huang put cash and marketable securities at "TWD 4 trillion, or $126 billion." Its Piotroski score, a 0-to-9 measure of financial health, is 8, and its Altman Z-score, a bankruptcy-risk gauge where higher is safer, is 16.87.
Why it matters for investors
Guidance points higher. For the fourth quarter of 2026, TSMC guided revenue to between $52.3B and $54.3B. Huang said that is a 58% increase from the year-ago quarter at the midpoint, in U.S. dollars. Wei said full-year 2026 revenue should grow around 44% in U.S. dollars. The consensus Q4 revenue estimate of $52.26B sits just below the low end of that range.
Spending is rising too. Capital spending for 2026 is guided to between $60 billion and $64 billion. Management said spending over 2026 to 2028 will be "even more significantly higher than the past three years." Huang said: "if [we] do our job right, the increase in revenue will outpace the increase in CapEx." The bet is that demand keeps up with the spending.
Valuation versus peers. On trailing 12-month figures, TSM trades at a P/E of 24.63 (price relative to the past year's earnings), a price/sales of 12.69, EV/EBITDA of 16.39 and price/free cash flow of 41.78. Its dividend yield is 1.0% and its net margin is 51.5%. Peers look different:
| Company | Market cap | P/E | Net margin | |---|---|---|---| | TSM | $2.14T | 24.63 | 51.5% | | UMC | $49.44B | 19.88 | 33.3% | | TSEM | $22.07B | 81.45 | 16.9% | | HHUSF | $27.29B | 164.37 | 3.8% | | INTC | $474.96B | -42.58 | -19.8% |
TSMC has the highest net margin in the group. Intel's negative P/E reflects losses (net margin -19.8%).
Analysts and our score. The consensus rating is Buy: 18 Buy, 7 Hold and no Sell ratings. Price targets average $585.57, with a median of $560.00, a high of $700.00 and a low of $500.00. Barclays and DA Davidson reiterated positive ratings on Oct. 16, and Needham did so on Oct. 15. FMP's discounted cash flow model, an automated estimate of what future cash flows are worth today, gives $129.79 a share, far below the market price. Such models are very sensitive to their growth assumptions. FMP data also shows 30 open-market insider purchases and no sales in the last 90 days.
Stock Expert AI's MoonshotScore V2 for TSM is 94.2 (Exceptional). Its sector-relative pillars are quality 94, safety 94, growth 90, momentum 80 and valuation 39. Business strength, balance sheet and growth score very high. Valuation is the weak spot, meaning the stock is not cheap compared with other companies in its sector.
What could go wrong
- Margins are slipping. The 2-nanometer ramp and overseas fabs are expected to weigh on profitability.
- Costs are rising. Management said "tool price inflation is real" and equipment supply is tight. Packaging (the final assembly of chips) is short on capacity, and the company is addressing that partly through GlobalFoundries.
- Weaker consumer demand. Management said consumer and price-sensitive segments are "being challenged due to the impact of rising component prices and macroeconomic uncertainties."
- Caution on 2027. Management said it is "being prudent in our business planning going into 2027."
- Market sentiment. TSM was down 2.28% on Oct. 16 and sits below the top of its 52-week range. On the call, Morgan Stanley's Charlie Chan referred to "some recent stock market correction."
What to watch next
- Jan. 21, 2027: the Q4 report. Watch whether revenue lands inside the $52.3B to $54.3B guided range and whether gross margin stays between 65% and 67%.
- Capacity plans. CFO Huang said it is "too early to talk about capacity increase percentage." Wei confirmed TSMC is evaluating Texas and in talks over a customer's "Terafab" project, saying "the fab has to be run by TSMC."
- AI growth rate. Wei said the AI accelerator revenue growth rate (2024–2029), previously guided at mid-to-high 50s percent a year under a narrow definition that excludes CPUs, "probably will be higher," but gave no new figure.
- Technology timing. Wei said TSMC will adopt High NA EUV, a next-generation chipmaking tool, in 2030, once it is mature and cost-effective.
- Free cash flow. Check whether the latest quarter's high figure holds as spending climbs.
Frequently asked questions
Q: Did TSMC beat earnings estimates in the third quarter of 2026?
Yes. For the quarter ended Sept. 30, 2026, TSMC reported EPS of $4.60 per ADR against an estimate of $4.45, and revenue of $46.06B against $45.67B. Both beat, the EPS by 3.4% and revenue by 0.9%.
Q: Why did TSM stock fall after strong earnings?
The data does not give a single cause. On Oct. 16, 2026, the latest quote showed shares down 2.28% at $412.61. On the call, Morgan Stanley's Charlie Chan referred to "some recent stock market correction."
Q: What is TSMC's guidance for the fourth quarter of 2026?
On its Oct. 15 call, the company guided Q4 revenue to between $52.3B and $54.3B, gross margin to between 65% and 67%, and operating margin to between 56.5% and 58.5%. It assumed an exchange rate of 31.8 Taiwan dollars per U.S. dollar. For the full year, it expects revenue growth of around 44% in U.S. dollars.
This is educational content, not investment advice. Past performance does not guarantee future results.