Taiwan Semiconductor Manufacturing Company Limited (TSMC, TSM) reported one of its strongest quarters on record, but the stock fell as investors weighed a major increase in spending plans. TSM was trading around $385 on Monday, down roughly 3.4% on the day.

TSMC said second-quarter revenue rose 33.7% year over year to $40.2 billion. Earnings per share came in at $4.31, up 74% and beating Wall Street estimates by $0.37. Gross margin reached a record 67.7% in the quarter, while operating margin expanded to 60.3%, well above industry peers.

High-performance computing now accounts for 66% of revenue and grew 20% quarter over quarter. Advanced technologies made up 77% of wafer revenue, with the 2nm node contributing 3% in its first full quarter of volume production. The 3nm node accounted for 30% of wafer revenue, while 5nm represented 33%.

Capital Spending Guidance Raised

TSMC raised its 2026 capital expenditure guidance to $60 billion to $64 billion. In addition, the company announced an extra $100 billion U.S. investment, bringing its total Arizona commitment to $265 billion. The larger spending plan is the kind of update that can draw a sharp market reaction even after a strong earnings print, because it signals more capital outlays ahead before the company can fully monetize new capacity.

The expanded Arizona plan includes four additional advanced fabs for 2nm and below technologies, along with advanced packaging capacity. The first Arizona fab began volume production of 4nm chips in late 2024. The second facility is expected to begin 3nm production in the second half of next year.

Analyst Reactions

Needham rolled its models forward to 2028 and increased its price target to $530 from $480, while maintaining a Buy rating. The firm expects 40% top-line growth in 2027 and 24% in 2028, with capex projected at $80 billion and $90 billion in those years, respectively.

DA Davidson also raised its price target to $500 and kept a Buy rating after the earnings report.

Seeking Alpha’s quant system currently rates TSM as a Hold. The platform assigns the stock an A+ profitability grade but a D- valuation grade. TSM is trading at roughly 23x to 24x forward earnings, compared with a five-year average of around 18.5x to 22x.

Bullish analysts pointed to the company’s updated full-year 2026 revenue growth guidance, which is now slightly above 40% and marks the second upward revision this year. For the third quarter, TSMC guided revenue between $44.6 billion and $45.8 billion, which implies year-over-year growth of about 37%.

Some analysts said the third-quarter gross margin guide of 65% to 67% reflects the costs of the 2nm ramp and dilution from overseas fabs, compared with the record margin posted in the second quarter.

JR Research, rated Buy, said the pullback was “an opportune time to double down.” Julia Ostian, also rated Buy, compared the decline with a similar late-2025 pullback that was followed by strong gains in early 2026. One Hold-rated analyst said a discounted cash flow model places fair value below the current share price, citing limited margin of safety.

TSMC also declared a quarterly dividend of NT$7.00 per share, payable October 8 to shareholders of record as of September 22.