TSMC set for strong quarterly growth driven by continued AI chip demand

Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC) (TWSE: 2330, NYSE: TSM) is expected to post another strong quarter when it reports full third-quarter results on Oct. 15, as demand for advanced chips used in AI continues to drive growth. The chipmaker has already reported third-quarter revenue of NT$1.49 trillion ($46.7 billion), up 50% year over year.

Visible Alpha consensus estimates point to wafer revenue of NT$1.2 trillion ($39.3 billion), up 44% year over year. Advanced manufacturing nodes are expected to remain the main growth drivers, with 3nm revenue projected to rise 84% from a year earlier, followed by 11% growth for 5nm and 14% for 7nm and 10nm chips. Together, these technologies are expected to account for nearly 70% of wafer revenue, reflecting TSMC's growing exposure to high-performance computing and other advanced-chip applications.

The next phase of growth is expected to come from 2nm technology. Visible Alpha consensus shows that analysts expect revenue from the node to reach NT$117 billion ($3.7 billion) in the third quarter, up from NT$33 million in the previous quarter. Its share of wafer revenue is forecast to rise to 9% from 3% in the previous quarter. The ramp-up marks a significant milestone as TSMC expands production of its most advanced chips to meet demand for more powerful and energy-efficient computing.

The expansion comes with substantial investment requirements. Analysts expect capital expenditure to reach NT$547 billion ($17.2 billion) in the quarter, up 90% year over year, as the company invests to support advanced node production and future capacity. Free cash flow is forecast to increase 157% to NT$358 billion ($11.2 billion), while the gross margin is expected to reach 66.5%, down from 67.7% in the second quarter. Diluted earnings per share are projected at NT$28.2 ($0.88).

The results will offer a closer look at how effectively TSMC is converting AI-driven demand into earnings and cash generation while funding the next phase of its manufacturing expansion.

Visible Alpha is a part of S&P Global Market Intelligence.

This article was published by Visible Alpha, part of S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.