Taiwan Semiconductor Manufacturing Co Ltd. reported a second-quarter net profit of NT$706.56 billion, representing a 77.4% surge from the previous year, driven by unrelenting demand for artificial intelligence chips. The world's largest contract chipmaker posted revenue of $40.2 billion, climbing 36% year-over-year, while gross margin rose to 67.7% and operating margin reached 60.3%. Despite the record earnings, shares fell roughly 4.6% in the premarket session and are down 15% in July, marking the stock's worst month since September 2022, as investors reacted to an aggressive capital-spending ramp and volatility in the semiconductor sector.

Financial Performance

Wendell Huang, Senior VP and Chief Financial Officer, attributed the margin expansion to stronger cost performance and higher factory utilization, partially offset by overseas fabrication plants. Taiwan Semiconductor generated 783 billion New Taiwan dollars in operating cash flow during the quarter. The company spent 496 billion New Taiwan dollars, or about $15.7 billion, on capital expenditures and ended the quarter with 3.5 trillion New Taiwan dollars, or about $110 billion, in cash and marketable securities.

Advanced Technologies Drive Revenue

The robust results were heavily fueled by demand from technology titans like Nvidia Corp. and Apple Inc. Notably, 77% of the company's wafer revenue now comes from advanced process technologies—7-nanometer and below. The company's 2-nanometer process, which has Apple Inc. as a key customer, already accounted for 3% of wafer revenue during the quarter. Taiwan Semiconductor expects a steep production ramp in the third quarter as demand for leading-edge chips continues to accelerate.

Raises 2026 Outlook And Capital Spending

Taiwan Semiconductor expects third-quarter revenue of $44.6 billion to $45.8 billion and forecast a gross margin of 65% to 67%. The company raised its full-year 2026 revenue growth outlook to slightly above 40% in U.S. dollar terms. Additionally, Taiwan Semiconductor increased its 2026 capital spending plan to $60 billion to $64 billion, up from its previous forecast of $52 billion to $56 billion, with most of the investment supporting advanced process technologies. Huang noted that the ramp of its 2-nanometer technology will reduce gross margin by about 3 to 4 percentage points, but strong customer demand and ongoing cost improvements should offset part of that impact.

AI Demand Drives Expansion Amid Sector Volatility

Chairman and CEO C.C. Wei stated that demand tied to artificial intelligence remains extremely robust and that the company has strong confidence in the long-term AI growth trend. Wei said agentic AI is increasing demand for data center CPUs while also boosting demand for AI accelerators and other advanced chips. He added that Taiwan Semiconductor is working closely with customers developing x86, Arm-based and RISC-V processors to align production capacity with long-term product roadmaps. The company plans to invest another $100 billion in its Arizona operations, bringing its total planned investment there to $265 billion.

DA Davidson analyst Gil Luria reiterated a Buy rating and raised the price target to $500, calling the increased capital expenditure guidance "highly bullish" for meeting continued demand for leading-edge process technologies and the emerging agentic AI market.

Barclays and TD Cowen have both adjusted their price targets for Taiwan Semiconductor, reflecting updated outlooks on the chipmaker's valuation potential. Barclays analyst Simon Coles maintained an Overweight rating and raised the target to $650 from $625. Separately, TD Cowen analyst Krish Sankar maintained a Hold rating and increased the target to $440 from $400.

Rating and Target Details

The following table summarizes the revised ratings and price targets from both firms: