Taiwan Semiconductor Manufacturing Co (TSMC) is set to report third-quarter earnings on Thursday, with the market's attention shifting from the already-disclosed record revenue to the sustainability of its AI-driven growth and the profitability that supports its premium valuation.
US-listed shares of TSMC closed Tuesday near $445, roughly 9% below their early-October high, even after the company reported record quarterly sales. This pullback has created a more balanced setup heading into the results, but options traders still anticipate a significant move.
Options expiring on October 16 imply a post-earnings move of about 4% for TSMC stock. At Tuesday's close, the near-the-money $445 call and put were priced at approximately $18 combined, suggesting a post-earnings range of $427 to $463. Given TSMC's market value of roughly $2.1 trillion, a 4% move would translate into more than $80 billion of equity value changing hands in either direction.
Positioning is concentrated around nearby strikes, with open interest in the $450 calls above 9,500 contracts and the $440 puts carrying more than 6,000 contracts, making these levels key markers for the immediate reaction.
The revenue surprise is already known: TSMC reported third-quarter sales of NT$1.49 trillion (about $46.7 billion), up 50% year-over-year and above its own guidance of $44.6 billion to $45.8 billion. Therefore, the market's focus will be on profitability and forward guidance.
TSMC previously guided for a third-quarter gross margin of 65% to 67% and an operating margin of 56% to 58%, compared with 67.7% and 60.3% in the second quarter. An LSEG SmartEstimate expects net profit to rise 65% to NT$746.3 billion, which would mark a sixth consecutive quarterly earnings record.
Bank of America analyst Haas Liu expects gross margin near 67% and sees fourth-quarter sales rising 10% to 15% sequentially, according to TipRanks. Liu also raised his ADR price target to $620 from $590 and described TSMC's valuation at around 16 times estimated 2027 earnings as "undemanding."
The fourth-quarter outlook could carry more weight than the headline profit figure. Morgan Stanley analyst Charlie Chan expects TSMC to raise its 2026 revenue growth forecast to the low-to-mid 40% range from its current guidance of more than 40%.
The bigger debate is shifting toward how long TSMC can sustain extraordinary AI-driven growth while absorbing the cost of new technology and overseas expansion. The company raised its 2026 capital expenditure forecast in July to $60 billion to $64 billion. BofA's Liu expects spending of about $63 billion this year and as much as $83 billion in 2027 as TSMC expands 3nm, 2nm, A16 and advanced packaging capacity.
Investors will watch closely for commentary on Nvidia and custom AI accelerator demand, CoWoS packaging capacity, and the 2nm ramp, where higher costs could pressure margins before utilization improves. Geographic expansion will also remain in focus, as TSMC has committed $265 billion to its Arizona manufacturing build-out and has been evaluating potential expansion in Texas. Morningstar analyst Phelix Lee told Reuters that Texas was "a good location for a 2030s or 2040s expansion grand plan," but saw little urgency while Arizona capacity is still being built.
This article is for informational purposes only and does not constitute financial advice.
