TSM is a high-conviction buy: results beat expectations; at 18.8x forward earnings it is attractive below 20/25 versus my $584 DCF value and $422 price, leaving upside. Expansion should lift revenue for the next year, two years and perhaps three, uncertain after four; China-Taiwan and AI slowdown are risks.

Taiwan Semiconductor Manufacturing Company (TSMC) reported revenues of $47 billion in its most recent fiscal quarter. This represents a 41% increase compared to the same quarter last year.

Gross profit margins exceeded 66%. Operating profit margins approached 59%. Management expects to continue achieving strong and improving margins in the next quarter. But it warns investors again that they should expect gross margins to decline in the long term as they invest in new technology and diversify their manufacturing base outside their home country.

Do all these factors represent a great buying opportunity for investors in Taiwan Semiconductor shares ? I would like to answer this question in this video after I share with you all the details that I found most important from the company’s latest quarterly financial results.

Taiwan Semiconductor Company's revenue and profits came in above the company's maximum expectations. For several consecutive quarters, management has been expecting a decline in gross profit margins as a result of investments in new technology and diversification of the manufacturing base.

Those declines have not yet materialized , but the management team has again informed investors that they will.

It is happening more slowly than expected due to the high rate of capacity utilization and the existence of competitive prices for our services. The company announced its results on the morning of October 15, and I found some interesting things in the analysis of chip revenues by technology.

There, she highlighted the newer technologies, 2 nanometers and 3 nanometers. In chip technology , the smaller the number, the more innovative and cutting-edge the technology.

You can see the latest 2nm technology rising to 3% of revenue in the second quarter of 2026, and more than doubling in the third quarter to reach 8% of revenue. It wouldn't surprise me to see this percentage rise even further in the fourth quarter to form a larger share of revenues.

The company's management team explained that during the initial launch phases of the new technology, " it slightly affects margins because they are not producing it at full production volume, but the process is improving."

The previous generation, 3 nanometers, now accounts for 33 % of revenue, up from 30% in the previous quarter. This tells us a few things. First, it tells us that they are adept at innovation and introducing ever-newer technologies . They have been doing that for decades.

This tells us that customers of Taiwan Semiconductor Manufacturing Company's services demand the most distinctive products. They do not go for lower quality or cheaper products.

Instead, they are moving towards the newest and most innovative, even if it comes at a higher cost.

What we already knew, but were further confirmed by Taiwan Semiconductor Manufacturing Company , is that artificial intelligence is the driving force behind the company's results , and this continues.

In the third quarter of 2026, high-performance computing, which TSMC calls artificial intelligence, accounted for 68% of revenue, up from 66% in the previous quarter and 57% in the same period last year.

The biggest drop was in smartphone revenue, which accounted for 30% of revenue in the same quarter last year . This percentage has decreased by about a third to reach 21% of revenues in the last quarter ended.

Now you can understand why this happened, right? Smartphone manufacturers rely on Taiwan Semiconductor Manufacturing Company.

AI companies rely on the same products and services. AI companies are prepared to pay more. Therefore, these higher prices, resulting from this new source of demand, lead to higher costs for these components and services.

Unlike AI companies, smartphone manufacturers do not face increasing demand that would allow them to offset high costs. Therefore, what smartphone manufacturers are doing is ordering smaller quantities.

They are not requesting the same quantities as before. They have raised the prices of their products, and they realize that with higher prices, consumers will buy fewer units , and therefore need less of the product.

I think this will be the case for the rest of this year, and perhaps until at least the middle of next year as well. As of 2026, TSMC has spent over $40 billion in capital expenditures to build, develop and expand its manufacturing capabilities as it sees strong demand.

They sell almost their entire production capacity every quarter, so they are building more to take advantage of increasing demand, and the conversations and deposits they receive from customers give them the confidence to do so, as this company has historically been relatively conservative with regard to investing in expansion.

They understand that the semiconductor industry is cyclical. They are not overly enthusiastic about periodic peak times and do not overdo construction. They did not do so in the past, and therefore they have now confirmed, as they expand construction, that they expect to spend between $60 billion and $64 billion in 2026.

The fourth quarter will be the largest in terms of capital expenditure for TSM if it wants to meet the commitments it has set for the whole year. As they expand their manufacturing capabilities, their revenues are likely to rise in parallel.

As I mentioned, there is huge demand for the product, and once it is ready, there are customers waiting to buy.

This is true for next year, the next two years, and perhaps even the next three years. But question marks begin to appear after four years and above. This is where investors begin to look to the distant future; We have a lot of data that confirms that customers are paying deposits and placing pre-orders for all available supplies in sectors such as memory, storage and manufacturing at TSM.

All of that has been booked for the rest of this year and until the end of 2027, and we are already thinking about 2028, which is starting to fill up in terms of supply chains.

This has been an excellent quarter for Taiwan Semiconductor Manufacturing Company, but you would n't realize it if you looked at the stock's reaction, which fell by 1.8% following these developments.

However, the stock is still up for the year. It's up by more than 40% even after today's drop. But today's reaction is more about the stock prices before the report was released, and not about what the report itself contained.

The stock is currently trading at a forward price-to-earnings ratio of 18.8, which I consider relatively cheap for a company growing at this rate with high profit margins and significant competitive advantages.

I think it's an attractive price below 20. I also think it's attractive below 25. I've also updated my discounted cash flow assessment . According to my estimates, the company is worth $584 per share. It is currently being sold for $422.

Therefore, I see great opportunities for growth from this point onwards for TSM stock. Of course, the biggest risks remain geopolitical, with China's threats to Taiwan.

Secondary risks include the possibility that the AI boom will slow down and decline a few years from now.

I have always spoken enthusiastically about how optimistic I am about TSM stock for many years now. This year was no exception . Therefore, I am pleased to see the stock rise by more than 40%, outperforming the market by about 4 times in 2026.

I last updated this rating on October 6. I reiterate my buy recommendation with a high level of conviction in this recommendation. Today, having absorbed these results, I will reaffirm that purchase recommendation with a high level of conviction.

Of course, we will learn more about the AI industry and manufacturing demand from Taiwan Semiconductor Company when major companies announce their earnings later this month.