Taiwan Semiconductor Manufacturing Company reported its strongest quarterly results on record Thursday, posting second-quarter revenue of $40.2 billion at the very top of its own guidance range, a 36% year-over-year increase powered almost entirely by artificial intelligence chip demand. Net profit surged 77% to approximately $22 billion, and gross margin came in at 67.7%, above the company's guided ceiling of 67.5%. Management raised its full-year revenue growth forecast to slightly above 40%, up from a prior projection of above 30%, and guided third-quarter revenue to between $44.6 billion and $45.8 billion, implying another 37% year-on-year increase.
Despite the blowout results, TSMC's ADRs fell more than 5% on Friday as investors fixated on a sharp increase in planned capital expenditure. The company raised its 2026 capex forecast to a range of $60 billion to $64 billion, at least $8 billion above the top of the prior $52–56 billion guidance, citing the need to expand advanced manufacturing capacity and meet surging AI infrastructure demand. The company simultaneously unveiled an additional $100 billion investment commitment in Arizona, expanding its US footprint as a geopolitical hedge under pressure from Washington.
The capex hike alarmed investors already on edge about whether the AI infrastructure buildout will generate returns commensurate with the capital being deployed. CFO Wendell Huang said 70% to 80% of the 2026 budget would go toward advanced process technologies, with the remainder split between specialty nodes and advanced packaging, but warned that the ramp of overseas factories in Arizona and Japan would weigh on margins in the initial stages. Management noted that overseas fabs carry meaningfully higher cost structures than TSMC's home base in Hsinchu.
The selling was not contained to TSMC. The Philadelphia Semiconductor Index fell approximately 4.3% by midday Friday, with Micron down around 6%, SK Hynix's US-listed ADRs shedding roughly 14% as the stock continued to digest profit-taking after its record $26.5 billion Nasdaq IPO the prior week, Nvidia off about 2%, and Broadcom sliding more than 5%. The pattern echoed ASML's experience a day earlier, when the Dutch equipment maker raised guidance and still saw its stock decline, prompting JPMorgan's equity trading desk to note that the semiconductor bar for upside surprises has moved so high that even record-breaking quarters are no longer sufficient to drive shares higher.
TSMC chair C.C. Wei pushed back on the pessimism, telling analysts on Thursday's call that the company's "conviction in the multi-year AI megatrend remains very high" and that it does not foresee any bottlenecks in its capacity expansion plans. He said CoWoS advanced packaging capacity — critical for Nvidia's GPU stacks — remains fully sold out through 2027 and that HBM demand signals from major customers have not softened. The company's technology roadmap continues on schedule, with the 2-nanometer N2 process node entering volume production for Apple and Nvidia in the second half of 2026.
Analysts remain broadly constructive on the stock's long-term outlook but are increasingly divided on near-term price action. Some argue the selloff is a mechanical de-risking of an overcrowded trade rather than any fundamental deterioration, pointing out that every major chipmaker's numbers this quarter have screamed demand durability. Others caution that rising capital intensity, coupled with early signs of margin dilution from overseas expansion, introduces a new set of risks that the market had not fully priced into a semiconductor sector that had appreciated more than 130% from its 2025 lows.
For the broader US market, the chip sector's reaction has set a cautious tone heading into a Friday session already pressured by Netflix's post-earnings decline and Iran's fresh strikes in the Middle East. The Nasdaq-100 is on track for its worst weekly performance in more than a month.