Net profit expected to increase by 65%, capital expenditure projected at 85 billion USD - Three must-answer questions from TSMC's earnings conference

Introduction: This Thursday, the major supplier of global AI chip foundry will deliver its third-quarter results. TSMC's capital expenditure directly affects the order expectations of equipment manufacturers such as ASML and Applied Materials, while the expansion pace of CoWoS advanced packaging relates to the delivery capability of clients like NVIDIA for AI chips. For the entire AI infrastructure chain, this financial report and conference call serve as a concentrated progress check. In terms of market performance, TSMC's US stock closed at $445.12 on Wednesday, with a market capitalization of approximately $2.3 trillion (market interface), about twice that of Samsung Electronics' market value (calculated based on the closing price and exchange rate on that day). The Taiwan stock market closed down 1.97% to NT$2490 on Tuesday. In the week leading up to the earnings report, the Philadelphia Semiconductor Index had just experienced four consecutive declines, and Broadcom's CEO reiterated that "capital is the biggest constraint," adding another layer to the interpretation of this report compared to previous years. This article breaks down the questions that need to be answered during the conference call into three parts.

1. Market Forecast for "Six Consecutive Championships" in Profit

Revenue has already been reported. Preliminary data released by the company last week indicated that third-quarter revenue reached NT$1.49 trillion, a year-on-year increase of about 50%, exceeding the company's previously provided guidance range, with September's monthly revenue approaching the historical record set in August. Fernando, founder of Zero One, has a straightforward calculation: the company previously expected a "slightly above 40%" growth in dollar revenue for 2026. If this statement is maintained, the growth rate for the fourth quarter would only be one-third of the third-quarter guidance level, lower than the actual operational level of the business, indicating a possibility of further upward adjustments to guidance (as reported by Jinshi Data and Zhitong Finance).

Profit expectations are more aligned. LSEG SmartEstimate aggregates predictions from 16 analysts, estimating that third-quarter net profit is expected to grow by about 65% year-on-year to NT$746.3 billion. If it exceeds NT$706.56 billion, it will set a new quarterly record and achieve profit growth for 11 consecutive quarters (according to reports from Reuters and others). Local firms' estimates are slightly lower: some reports estimate a gross margin of 67.1% for the third quarter, an operating profit margin of 58.1%, a post-tax net profit of about NT$733 billion, and earnings per share of about NT$28.27. Yuanta Investment Advisory has revised the third-quarter EPS upward to NT$29.03 and expects a quarterly revenue increase of 10% to 15% for the fourth quarter, with EPS projected at NT$33.37, and EPS for 2026 and 2027 projected at NT$111.72 and NT$157.29, respectively (as reported by the media). Morgan Stanley's Zhan Jiahong has a consistent direction, stating that driven by strong demand for 3nm, the full-year revenue growth guidance may be adjusted from "slightly above 40%" to the mid-low range of 40%. On the eve of the earnings report, Bank of America raised TSMC's target price, citing the ramp-up of 2nm capacity boosting sales expectations and profit margins (Futu reported, this view only represents the judgment of the relevant institution).

2. Capital Expenditure, the True Divergence This Quarter

Revenue and earnings per share falling within the guidance range is merely "compliance"; the real divergence in this financial report lies in capital expenditure. In July, TSMC raised its capital expenditure for 2026 from $52 billion to $56 billion to $60 billion to $64 billion, an increase of about 7% to 14%, primarily for advanced process and advanced packaging capacity. A summary from Seeking Alpha shows that the capital expenditure for the second quarter was approximately $15.59 billion, which is basically consistent with the annualized level executed at the $64 billion upper limit, with about 70% of the investment structure allocated to advanced processes, 10% to 20% for advanced packaging testing and photomasks, and 10% for special processes. Estimates for 2027 are already being raised, with Goldman Sachs raising its capital expenditure estimates for 2027 and 2028 to $85 billion, while Citigroup estimates about $81 billion for 2027 and about $90 billion for 2028 (as cited in research reports).

Why is capital expenditure guidance important? The order expectations of equipment manufacturers come from the investment plans of foundries, and the expansion pace of advanced packaging like CoWoS determines the delivery limits of AI chips. The market just heard another voice last week, with Broadcom's CEO Chen Fuyang stating that capital is the biggest constraint for AI expansion. If TSMC maintains or raises its expenditure plans, it indicates that investment on the supply side is still accelerating. If the wording turns cautious, the impact of financing conditions on the expenditure pace will enter the pricing of equipment manufacturers and AI chips. There were also differing voices before the earnings report, with an analysis from Seeking Alpha downgrading TSMC's rating to hold, citing that accelerated capital expenditure would pressure free cash flow, estimating that the total free cash flow for the first three quarters was about $37.8 billion, and if executed at the $64 billion annual level, about $28.9 billion would still need to be spent in the last two quarters (this view only represents the judgment of the article's author).

The market is particularly focused on the expansion progress of CoWoS capacity. As AI accelerators increase the demand for computational performance and memory bandwidth, advanced packaging remains a tight link on the supply side. According to public reports, TSMC is expanding its silicon intermediary layer supply capacity in the U.S. through its partner GlobalFoundries, which is expected to begin ramping up production in the first half of 2028. Amkor's advanced packaging plant in Arizona is planned to begin production in early 2028. Industry estimates suggest that TSMC's first advanced packaging plant in Arizona may start operations as early as the first half of 2028.

3. After Arizona, Is Texas the Next Stop?

The expansion layout is another focus of the conference call. TSMC has planned to invest $265 billion in Arizona to build chip factories, including an additional $100 billion announced in July. According to a Reuters report in September, the company is evaluating the possibility of investing in Texas. Last week, Elon Musk stated that his companies would build and operate an AI chip park named Terafab, and TSMC may lease part of the facilities. There are also reports that the two companies have discussed joint factory construction and received confirmation from Musk on social media (exclusive reporting by Culpium and subsequent media citations), with participation details to be disclosed by the company.

Two institutional judgments can be viewed side by side. Morgan Stanley believes that TSMC's customer demand is expected to continue to grow over the next five years, and the space at the Arizona facility is limited, making the layout of new production lines in Texas highly necessary. Morningstar senior stock analyst Phelix Lee, on the other hand, believes that TSMC's planned wafer fabrication facility in Arizona has not yet started construction, and the urgency to enter Texas is not high; Texas has a mature semiconductor industry cluster and talent reserve, making it more suitable for long-term expansion planning from the 2030s to 2040s. This view only represents the judgment of the relevant institution.

4. Three Variables to Watch in the Conference Call

First, whether capital expenditure will be further raised. Whether the $60 billion to $64 billion range provided by the company in July will be executed at the upper limit, and whether a new investment framework will be provided for 2027, directly determines the visibility of orders for equipment manufacturers and material suppliers.

Second, the specific timetable for CoWoS capacity expansion. The delivery bottleneck for AI chips lies in advanced packaging, and the expansion speed of CoWoS relates to the shipping rhythm of clients like NVIDIA, also determining the growth slope of revenue in the advanced packaging segment.

Third, the full-year revenue growth guidance and the statements for 2027. Morgan Stanley expects the guidance to be raised to the mid-low range of 40%; if management provides a more optimistic outlook, the profit expectations for the AI infrastructure chain will receive concentrated confirmation. If the statements are conservative, the market will need to recheck the alignment of fourth-quarter growth and 2027 capital expenditure.

In summary, based on the market and public information, the market is focused on the realization of profit records and a relatively positive statement on capital expenditure, with the real suspense being whether the 2027 framework will be provided in advance. If the capital expenditure guidance falls at the lower end of the range and the CoWoS statements weaken, the interpretation of "AI infrastructure investment is still accelerating" will need to be revised.

Data Explanation

• Revenue and Net Profit: TSMC's preliminary performance announcement for the third quarter, to be released in early October 2026. LSEG SmartEstimate (16 analysts) as reported by Reuters and others.

• Capital Expenditure: Company guidance from the July conference call ($60 billion to $64 billion, reported by Central News Agency and others). Estimates from Goldman Sachs and Citigroup are cited in research reports.

• Institutional Estimates: Reports from local institutions such as Yuanta Investment Advisory as reported by the media, October 11-13, 2026.

• U.S. Expansion: The $265 billion for Arizona is disclosed by the company. Texas is from a Reuters report in September. Terafab is based on Musk's statement and exclusive reporting by Culpium.

• Market Performance: TSMC's U.S. stock and Samsung Electronics' market capitalization are from market interface data, as of the close on October 13, 2026, with exchange rate calculations as mentioned in the text.

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