Taiwan Semiconductor Manufacturing (TSM -3.01%) is one of the unsung heroes of the artificial intelligence (AI) revolution. The company makes the chips used in AI development, and it partners with all of the major semiconductor companies.
TSMC's stock is up 440% over the past three years, and it's now the sixth-largest company in the world, with a $2.5 trillion market cap.
The company reports third-quarter earnings on Oct. 15, and there could be some important news. Here's what to look out for.
Image source: Taiwan Semiconductor.
Investing for future growth
TSMC, is the largest chip foundry in the world, and it has a dominant position, responsible for 73% of global semiconductor manufacturing revenue. Its market share increased over the past few years since it's the only company capable of producing the advanced chips its clients need for powerful AI processes at scale.
The company's client base includes all of the major AI chip developers like Nvidia and Amazon, and TSMC is expanding its edge by opening new fabs both in its native Taiwan as well as other global regions, including the U.S. It opened its Arizona location last year, and it's planning to expand that into a cluster of six facilities to meet the high-level needs of clients like Nvidia and Apple, which was its largest client until this year, when Nvidia superceded it.
TSMC and Nvidia had a joint celebration when Nvidia's Blackwell graphics processing units (GPU) were the first chips to roll off the Arizona fab's machines last year, and TSMC is planning to invest $265 billion in the location to produce three and then two-nanometer chip development.
Management is seizing the opportunity to create the infrastructure to handle incoming demand, and it's excited about the future.
What to expect in the third quarter
Management said that it expects some gross margin contract in the back of the year before any incremental benefits from greater capacity. Its outlook includes:
- Revenue of $45.2 billion, a 37% increase over last year.
- Gross margin of 66%, up from 59.5% last year.
- Operating margin of 57%, up from 50.6% last year.
It also noted that while it's taking memory cost increases into consideration, it still expects high demand. It also pointed out that the rise of agentic AI is creating a need for central processing units (CPU), which it can fill. "We believe this is positive for TSMC, as no matter what CPU approach is taken," said CEO C.C. Wei. "They are almost all TSMC's customers."
NYSE: TSM
Key Data Points
Longer term, the company expects higher capital expenditures (capex) over the next three years, and while the market tends to dislike high capex spend, it sees it as a positive update for TSMC. That's likely because it's an expansion of the company's profitable business rather than a stab at a possibly viable venture. Wei said that the company forecasts capex spend based on demand, and that it expects 2027 to be a very good year.
Taiwan Semiconductor Manufacturing usually beats on guidance, and if it has positive updates about its U.S. expansion or new deals, the stock could jump. Whatever happens on Oct. 15, though, it's a great stock to own for the long term.
