Taiwan Semiconductor's AI Spending Spree Tests Investor Nerves

Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE:TSM) stock fell in Thursday’s premarket session as investors weighed the company’s larger capital spending plans. Taiwan Semiconductor Beats Estimates, Expands Margins Taiwan Semiconductor reported second-quarter revenue of $40.2 billion, topping the analyst consensus of $39.76 billion. The result also reached the high end of the company’s guidance range of $39 billion to $40.2 billion. The world’s largest contract chipmaker posted record second-quarter net profit of about $22 billion, driven by continued demand for artificial intelligence processors. Gross margin rose to 67.7%, up 150 basis points from the prior quarter and above company guidance. Chief Financial Officer Wendell Huang said stronger cost performance and higher factory utilization supported margins. However, overseas fabrication plants partially offset those gains. Taiwan Semiconductor generated 783 billion New Taiwan dollars in operating cash flow during the quarter. It spent 496 billion New Taiwan dollars, or about $15.7 billion, on capital expenditures. The company ended the quarter with 3.5 trillion New Taiwan dollars, or about $110 billion, in cash and marketable securities. Raises 2026 Outlook And Capital Spending Taiwan Semiconductor expects third-quarter revenue of $44.6 billion to $45.8 billion. It forecast a gross margin of 65% to 67%. Huang said the ramp of its 2-nanometer technology will reduce gross margin by about 3 to 4 percentage points. Still, strong customer demand and ongoing cost improvements should offset part of that impact. The company also raised its full-year 2026 revenue growth outlook to slightly above 40% in U.S. dollar terms. In addition, 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. Most of that investment will support advanced process technologies. AI Demand Continues To Drive Expansion Chairman and CEO C.C. Wei said 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 said it does not expect capacity bottlenecks as it expands production. Taiwan Semiconductor plans to invest another $100 billion in its Arizona operations, bringing its total planned investment there to $265 billion. The expansion includes multiple logic wafer fabs for 2-nanometer production and advanced packaging facilities to support long-term demand from major U.S. customers. Taiwan Semiconductor is also building 13 advanced fabrication and packaging facilities in Taiwan while expanding 3-nanometer production capacity in Taiwan, Arizona and Japan. Taiwan Semiconductor CEO Takes Swipe At Rivals Wei used the earnings call to argue that government subsidies alone will not determine long-term leadership in semiconductors, while taking indirect jabs at competitors in South Korea and the U.S. While acknowledging that a South Korean rival is generating “a huge amount of money” and a U.S. competitor has “very strong U.S. government support,” Wei said Taiwan Semiconductor’s competitive advantage remains rooted in its technology, manufacturing expertise and customer trust. He also argued that customers cannot easily switch foundry partners, comparing the process to something far more complex than “buying milk from 7-Eleven.” Price Action TSM Stock Price Activity: Taiwan Semiconductor shares were down 4.60% at $400.19 during premarket trading on Thursday, according to Benzinga Pro data. Photo via Shutterstock Read Also: U.S. Official Says NVIDIA H200 Shipments to China Are 'Trivial'