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Taiwan Semiconductor’s $64 Billion AI Expansion — Can Its 66.4% Margins Hold?

Taiwan Semiconductor Manufacturing Company (TSMC) reported third-quarter 2026 revenue of $46.7 billion, increasing 17.6% sequentially in New Taiwan Dollars (TWD) and 16.2% in U.S. dollars, exceeding guidance. Growth reflected leading-edge demand, particularly the 2-nanometer (nm) ramp, contributing 8% of wafer revenue. Technologies at 7 nm and below represented 79% of wafer revenue. High-performance computing (HPC) revenue grew 22% quarter-over-quarter, reaching 68% of total revenue, supported by AI demand. Smartphones and IoT grew moderately, automotive increased 23%, while data consumer electronics declined 12%. Gross margin declined 1.3 percentage points sequentially to 66.4%, reflecting 2 nm ramp costs and overseas fabrication expenses. Fourth-quarter guidance projects gross margins of 65–67% and operating margins of 56.5–58.5%. Productivity improvements and node capacity optimization should partially offset pressures. Overseas fabs are expected to dilute 2026 margins by approximately 2%, potentially rising to 3–4% as U.S. operations expand, particularly in Arizona.