Review|TSMC 26Q3: Revenue Guidance Beats Expectations as Expansion Weighs on Margins

TSMC expressed confidence in advanced-node and long-term AI demand during its earnings call. Management said that, alongside discussions with direct customers and their downstream customers, its teams had checked US data center construction and power availability, with encouraging feedback so far. Agentic AI and open-source models are also increasing demand for computing chips. TSMC is responding by adding N3 fabs, departing from its usual practice of stopping capacity additions once a node reaches its target.

Revenue Guidance Beats Expectations; N2 Ramp Weighs on Margins

TSMC guided 26Q4 US-dollar revenue to $52.3–54.3b, implying 14.1% QoQ growth at the midpoint, above our 11.7% forecast and in line with the more optimistic buy-side expectations we track. The gross margin guidance midpoint of 66.0% was below the 67%–68% buy-side range we use as a reference. Near-term dilution reflects the N2 capacity ramp and volume production at fabs outside Taiwan. Management expects these fabs to dilute 2026 gross margin by close to 2 percentage points. As more US fab phases enter volume production, dilution is expected to reach 3–4 percentage points in the latter half of the company’s previously outlined five-year planning period. The 2026 capital expenditure budget remains $60–64b.

AI Demand Remains Strong; Consumer Markets Warrant Caution