On Thursday, Taiwan Semiconductor Manufacturing (NYSE: TSM), better known as TSMC, released second-quarter earnings that blew away expectations. But management also noted it plans to increase its capital spending amid growing demand for advanced semiconductors. That includes another $100 billion commitment to build new facilities in Arizona on top of its existing plans to spend $165 billion in the U.S.
It seems the market is wary of that increased capital spending — it sent shares lower on the news. But the sell-off the stock has been undergoing this month could be a buying opportunity for investors.
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Management was relatively vague about its $100 billion commitment to build additional facilities in the U.S., but it was clear in its plans to ramp up total production capacity in the second half of 2026 and beyond. Management said it now expects capital expenditures for the year between $60 billion and $64 billion, up from its previous outlook of $52 billion to $56 billion.
Investors are concerned, though, as it's not clear how durable the growth in demand for TSMC's leading-edge chips for AI data centers will be in the long term. Its high-performance computing segment — which is mostly comprised of AI chips — accounted for two-thirds of TSMC's revenue last quarter, and it was the fastest-growing end market for the chipmaker as well.
But several factors should provide confidence in TSMC's ability to deliver strong returns on its invested capital. In the near term, management expects revenue growth to accelerate, forecasting full-year revenue growth of more than 40%. That growth comes with extremely high margins for the business. Its gross margin was 67.7% last quarter, and its operating margin reached 60.3%, year-over-year improvements of 9.1 percentage points and 10.7 percentage points, respectively.
What's more, TSMC's technological lead in producing cutting-edge chips with low defect rates at scale gives it significant pricing power. It used that power to raise prices at the start of the year, and did so again last month. Combined with continued improvements in the profitability of its 3-nanometer process node, it should produce strong margin expansion. That will be offset by the ramp-up of its new 2-nanometer process, which is running ahead of schedule.
Source: Yahoo Finance Top News — This article was automatically imported from the source. Read full article at original source →
