Taiwan Semiconductor Manufacturing Company (TSMC) reported sharply higher quarterly earnings, yet its U.S.-listed shares slipped in pre-market trading ahead of Thursday's market opening. TSM, the chipmaker's U.S.-listed American depositary receipts — dollar-denominated certificates that represent shares in the Taiwan-based company and trade on U.S. exchanges — fell 2.81% to $417.99, shedding $12.09 after an uneven early session. The pullback came even as the company posted a 68.7% surge in quarterly profit and 50.9% annual revenue growth on continued strong demand for advanced manufacturing processes.

Third-Quarter Earnings Show Sharp Annual Growth

For the quarter ended September 30, 2026, TSMC recorded consolidated revenue of NT$1,494.24 billion. Net income reached NT$763.06 billion, while diluted earnings per share came in at NT$29.43 — equivalent to US$4.60 for each American depositary receipt unit.

Compared with the same period a year earlier, revenue climbed 50.9%, while net income increased 68.7%. Diluted earnings per share grew at the same 68.7% pace, matching the rise in reported profit. On a sequential basis, revenue rose 17.6% from the second quarter, while net income advanced 8.0%.

Measured in U.S. dollars, third-quarter revenue totaled US$46.72 billion, marking 41.2% annual growth and a 16.2% increase over the previous quarter. Alongside the top-line expansion, the company posted a 66.4% gross margin, a 58.7% operating margin, and a 51.1% net profit margin. For readers parsing those figures, a 66.4% gross means roughly two-thirds of every revenue dollar remained after direct production costs, before operating expenses are deducted.

Advanced Chip Technologies Account for Most Wafer Revenue

TSMC's advanced production processes generated the bulk of its wafer revenue during the third quarter. Chips built on 3-nanometer technology contributed 33% of wafer revenue, while 5-nanometer processes added another 28%. The 2-nanometer process, the newest node in the company's lineup and still in the early phase of its ramp-up, accounted for 8% of total wafer revenue, and 7-nanometer technology generated a further 10%.

Together, processes measuring 7 nanometers or smaller represented 79% of total wafer revenue — a concentration that reflects the company's growing reliance on advanced nodes rather than older manufacturing technologies. Only a handful of manufacturers worldwide can produce chips at these leading-edge nodes, so that revenue mix also shows how much of the industry's most advanced output runs through a very small number of factories.

TSMC operates as a contract chipmaker, producing semiconductors for other companies rather than primarily selling its own branded processors. Its manufacturing services support products ranging from smartphones to data centers and artificial intelligence systems. As a result, orders for advanced computing hardware play an important role in the company's production mix — and because so many device makers depend on its factories, TSMC's quarterly figures are widely read as a gauge of demand across the broader electronics industry.

TSMC Projects Higher Fourth-Quarter Revenue

Looking ahead, TSMC expects fourth-quarter revenue of US$52.3 billion to US$54.3 billion, a range that would place dollar-denominated sales above the US$46.72 billion reported for the third quarter. The company based its margin forecasts on an assumed exchange rate of NT$31.8 per U.S. dollar. Management projects gross margins between 65% and 67% for the final quarter of 2026, with operating margins expected to land between 56.5% and 58.5%.

Chief Financial Officer Wendell Huang attributed the third-quarter performance to strong demand for leading-edge manufacturing technology. He expects that demand to continue as TSMC accelerates production of its 2-nanometer chips. The outlook places advanced manufacturing processes at the center of the company's year-end production plans, pairing higher sales expectations with gross and operating margins near third-quarter levels.

As the final quarter unfolds, the data points worth tracking include how quickly 2-nanometer output climbs from its current 8% share of wafer revenue and where the Taiwan dollar trades relative to the exchange-rate assumption embedded in the margin guidance.

Despite the strong financial results and the higher revenue forecast, TSM shares declined before the start of regular U.S. trading on Thursday.

This article was originally reported by Blockonomi.