TSMC's profits surged by 77%, but its stock price plummeted—the "buy the rumor, sell the news" game is playing out once again!

July 16, TSMC delivered an almost flawless quarterly report card. Data shows that the company's net profit for the second quarter increased by 77% year-on-year, and revenue, gross margin, operating margin, as well as third quarter revenue guidance all exceeded market expectations. AI demand remains strong, with contributions from advanced process technology further improving, underscoring the ongoing global investment boom in AI computing power. However, the impressive results did not lead to a rise in the stock price. After the earnings report was released, TSMC ADR fell nearly 4% in pre-market trading, as the market once again played out the "buy the rumor, sell the fact" scenario: with the stock price up about 77% over the past year, some investors chose to cash out after bullish results came to fruition. For the market, the focus is no longer just whether the results are eye-catching enough, but whether the company can continue to deliver results that exceed expectations in the context of high valuation and high expectations. This is also the common challenge currently faced by leading AI companies. High expectations, market begins to realize profits Although TSMC continues to set record results, investors are focusing not only on growth rate, but also on whether the valuation can continue to rise. Ricky Ho, fund manager at Singapore’s Four Capital, says market expectations for TSMC are already "exceptionally high", and future stock price increases will increasingly depend on management's ability to continuously outperform market expectations. Meanwhile, discussion around AI infrastructure investment continues. The market focuses on whether the ever-expanding capital expenditures of tech giants can provide adequate returns, while SK Hynix predicts that tight supply for AI memory chips like HBM will persist until after 2030, indicating that the AI industry's strong momentum remains undiminished. Profit up 77%, higher share for advanced process technology According to a prior article from Wallstreetcn, TSMC’s data released Thursday shows that net profit for the second quarter ending June 2026 reached NT$706.6 billion (approx. $22 billion), up 77.4% year-on-year and higher than analysts’ average estimate of NT$623.7 billion; revenue rose by 36% year-on-year to around $40.2 billion, near the upper end of the company’s previous guidance range ($39–$40.2 billion). Profitability also beat market expectations. Second quarter gross margin was 67.7%, above market consensus of 67.1%; operating margin reached 60.3%; earnings per share was NT$27.25, exceeding FactSet’s statistic of NT$24.20. Advanced process technology remains the core driver of growth. 7nm and below process nodes contributed 77% of wafer revenue, with 5nm accounting for 33%, 3nm for 30%, 7nm for 11%, and the 2nm process contributed revenue for the first time this quarter, at 3%. Bloomberg Industry Research analyst Charles Shum said that demand for AI server chips is sufficient to offset weakness in the smartphone and PC markets, and could further enable TSMC to raise product prices, pushing gross margin closer to management’s target of 67.5%. AI demand remains robust, Q3 guidance beats expectations TSMC expects third quarter 2026 revenue will fall between $44.6 billion and $45.8 billion, not only higher than the previous quarter but also exceeding FactSet’s market expectation of $43.67 billion. Chairman and CEO C.C. Wei clearly stated in the conference call, “AI-related demand continues to be very strong,” providing powerful support for earnings growth. As the core foundry for NVIDIA, Apple, AMD and other AI chip makers, TSMC’s capital expenditures are closely watched by the market. The company reaffirmed that its 2026 capital expenditure will approach a record $56 billion, seen as an important indicator of the global heat for AI infrastructure investment. Wei also pointed out that even as expansion of US factories continues, capacity will still not be able to fully meet customer demand in the coming years. In terms of capacity layout, TSMC announced an additional investment of about $10 billion in Arizona, bringing the total committed investment there to about $26.5 billion, further strengthening the US’s capability in advanced process technology. Over the past year, TSMC ADR has risen about 77%, with its market cap approaching $2 trillion, making its performance a key indicator for the global AI supply chain’s climate. Meanwhile, the market is also watching how the company will respond to competition from emerging technologies such as Intel’s EMIB-T packaging, and the intensifying industry battle in advanced packaging. This area of competition is becoming a new focus in semiconductor rivalry, following process technology. Risk Warnings and Disclaimer The market involves risk, and investment needs caution. This article does not constitute personal investment advice, nor does it take into account the specific investment goals, financial situations, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article fit their particular situations. Investments made accordingly are at your own risk.