The results (released Thursday afternoon, Taiwan time) reinforce the AI investment theme for Asian chip and hardware stocks, with TSMC’s view that demand is outrunning capacity supportive for suppliers across the semiconductor supply chain. The share reaction shows how high expectations are, though: a beat alone is no longer enough, and investors are now trading margins and cash flow. Taiwan’s equity benchmark, where TSMC carries a heavy weighting, is likely to take its lead from how the stock trades in Taipei. Higher planned capital spending is a positive read-through for equipment makers.---Background:TSMC set for sixth straight record profit as AI demand lifts Q3 earnings---TSMC delivered the AI boom in numbers and told investors it is not slowing, but with the beat priced in, the market chose to fret about margins and the bill for all those new fabs.Summary:Q3 net profit rose nearly 70% to about NT$763 billion, slightly above LSEG consensusRevenue of about $47 billion beat the top of TSMC’s own guidance rangeThe gross margin was about 66%, down from Q2 on the early 2nm rampAI-heavy high-performance computing made up 68% of revenue, and 2nm reached 8% of wafer revenueQ4 guidance is about $52 billion to $54 billion in revenue, with 2026 growth now seen at around 44%2026 capex was reaffirmed at $60 billion to $64 billion, and US-listed shares slipped after the resultsTaiwan Semiconductor Manufacturing Co. reported a jump of nearly 70% in third-quarter net profit on Thursday and raised its full-year growth outlook, as demand for chips used in artificial intelligence showed no sign of easing. The results still failed to lift its shares, with investors focusing on softer margin guidance and a heavy spending programme.Net profit rose to about NT$763 billion, slightly ahead of analyst estimates compiled by LSEG. Revenue reached about $47 billion, above the top of the company’s own guidance range. The gross margin of about 66% was well up on a year earlier but down from the second quarter. TSMC attributed the sequential dip mainly to the early ramp-up of its 2-nanometre production.The shift towards AI is clear in the revenue mix. High-performance computing, the segment that includes AI accelerators, accounted for 68% of revenue, up from 57% a year earlier. The newest 2-nanometre technology made up 8% of wafer revenue, up from 3% in the previous quarter.Chief Executive C.C. Wei said AI demand remained extremely robust and suggested it would probably outpace the company’s earlier long-term growth forecast. He said supply still falls well short of demand, with TSMC building close to 20 new fabs, most of them in Taiwan.For the fourth quarter, TSMC guided revenue of about $52 billion to $54 billion and a gross margin of 65% to 67%, a midpoint slightly below the third quarter. It now expects full-year revenue growth of around 44% in US dollar terms, up from slightly above 40% in July. The company reaffirmed 2026 capital spending of $60 billion to $64 billion. It said investment over the next three years would be significantly higher than in the previous three.Those last two points explain the muted market reaction. Margin guidance implies further dilution from the 2-nanometre ramp, while management said overseas factories, including in Arizona and Japan, will weigh more heavily on margins over time. Heavier capital spending also points to lower free cash flow in the near term. With strong growth already expected, the profit beat was not large enough to offset those concerns.The longer-term message remains firmly positive for the AI supply chain. TSMC’s view that demand is running ahead of capacity, and its willingness to keep spending to meet it, suggests the investment cycle has further to run. The next tests are whether margins stabilise as 2-nanometre production matures, and whether customers’ AI spending plans hold up through next year. This article was written by Eamonn Sheridan at investinglive.com.