TSMC Stock Drops Despite Record Profit as Soaring Capex Spooks Investors

Taiwan Semiconductor Manufacturing Co. (NYSE: TSM) shares fell on Thursday despite the company posting a record quarterly profit and raising its full-year outlook, as investors focused on a significant increase in capital spending and forecasts for weaker near-term profit margins. The reaction highlights growing concerns about the financial costs of meeting sustained AI-driven demand.

Record Earnings Meet Muted Reaction

On the surface, TSMC's second-quarter results for 2026 were exceptionally strong, marking a fifth consecutive quarter of record-high profits. The world's largest contract chipmaker credited what it called "extremely robust" demand for artificial intelligence processors for the performance.

Key Q2 2026 financial highlights include:

• Net Profit: A record T$706.6 billion ($21.99 billion), a 77% year-over-year surge.
• Earnings Per Share: $4.31, easily surpassing the Wall Street consensus estimate of $3.80.
• Revenue: $40.2 billion, slightly ahead of the $39.94 billion consensus.

Looking ahead, TSMC upgraded its full-year 2026 revenue growth guidance to "slightly above 40%," a significant increase from its previous forecast of over 30%. The company noted that the rise of agentic AI is boosting demand for both CPUs and accelerators in data centers.

Capex and Margin Worries Emerge

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The source of investor unease came from the company's forward-looking guidance on spending and profitability. TSMC raised its 2026 capital expenditure (capex) budget to a range of $60 billion to $64 billion, up from a prior estimate of $52 billion to $56 billion. The company also announced an additional $100 billion investment for its facilities in Arizona.

While TSMC guided for strong third-quarter revenue of $45.2 billion, well above the consensus of $43.1 billion, it projected an operating margin of approximately 57%. This figure was about 70 basis points below analyst expectations and signaled that gross margins would likely decline in the second half of the year, pressured by the costly production ramp-up of its new 2-nanometer process technology.

Market Impact and Investor Outlook

The combination of stellar past performance and cautious forward guidance created what traders call a "beat-and-worry" scenario. For a high-valuation company like TSMC, a sharp upward revision in capex can negatively impact its free-cash-flow projections, potentially leading to multiple compression as investors re-evaluate future returns.

"The revenue dynamics remain robust as the AI boom continues, although there are some negative wrinkles in the report — including the modest margin pressure," said Vital Knowledge analyst Adam Crisafulli, according to Investing.com. He noted that accelerating capacity additions can be a negative signal if the semiconductor market is viewed as cyclical rather than experiencing purely secular growth.

The concerns rippled across the semiconductor sector. Shares of major TSMC customer NVIDIA fell 1.3% in premarket trading, while AMD, Intel, and Micron also saw their stocks decline.