TSMC's Beat-and-Raise Gets Sold Anyway: Record Q3, ~44% Growth Year, $60–64B Capex — and the Stock Down 9% on the Week

TSMC's Beat-and-Raise Gets Sold Anyway: Record Q3, ~44% Growth Year, $60–64B Capex — and the Stock Down 9% on the Week

TSMC delivered its sixth consecutive record quarter on October 15 and the market sold it — the "expectations test" pattern the watch flagged has now fired again. Q3 revenue was $46.72B (+41.2% YoY in USD, +16.2% QoQ), above the top of the $44.6–45.8B guidance; net income NT$763.06B (+68.7% YoY); EPS NT$29.43 ($4.60/ADR vs $4.45 expected); gross margin 66.4% (down 130bp QoQ on 2nm ramp dilution, mid-guidance); operating margin 58.7%, above the top of guidance. HPC rose 22% QoQ to 68% of revenue; 2nm is already 8% of wafer revenue; free cash flow was NT$476.56B vs NT$139.38B a year ago.

Guidance says the AI boom is accelerating, not decelerating. Q4 revenue guided to $52.3–54.3B (+~14% QoQ, ~58% YoY at midpoint) and full-year 2026 revenue growth raised to ~44% in USD. CFO Wendell Huang reiterated the $60–64B 2026 capex budget and said 2026–2028 capex will be "significantly higher than the past three years," adding "The tool price inflation is real." Chairman C.C. Wei, asked about the AI accelerator CAGR: "all I can say right now is the demand is extremely robust, okay? We did not see any sign of slowdown. Whether it is a high 50 CAGR, it does not matter. It probably will be higher." And on capacity: "We have no intention to leave food on the table for others."

Terafab is real, and TSMC set the terms. Wei confirmed on the call: "We also talk to one of our customer who try to build a fab, Terafab... We are discussing with them, see whether that we can be utilizing that actual capacity... the fab has to be run by TSMC." TSMC has also sent evaluation teams to Texas for a possible expansion beyond Arizona. Wei disclosed TSMC is "sending our own teams of people to check on the data center build-out progress and power supply situation in the U.S." — a direct answer to the bubble debate's demand-verification problem.

The market's verdict: sell the print. TSM closed the week at $412.61, down 9.0% over five days and 2.3% the day after earnings, at RSI 32 and 15.1% below its 52-week high — despite beating 4-for-4 quarters and guiding up¹. It still trades at 26.7x P/E against a $584.39 analyst target, +4.9% above its 200-day. The load-bearing disagreement: fundamentals say the boom is steepening (Q4 guide implies ~58% YoY growth); the tape says positioning and cost-of-capital, not demand, now set the price. One margin caveat worth tracking: overseas-fab dilution widens to 3–4% of gross margin in the latter part of the five-year period as Arizona accelerates. The read-through into this week: Meta's capex guide (Oct 21) and Nvidia's November print now carry an even higher expectations bar.