Taiwan Semiconductor Manufacturing Co (NYSE:TSM) stock gained on Thursday after the contract chipmaker delivered third-quarter results that blew past analyst expectations, driven by global demand for its advanced processor technologies essential for artificial intelligence applications.
As a key supplier to tech giants like Nvidia (NASDAQ:NVDA) for its graphics processing units (GPUs) and Apple (NASDAQ:AAPL) for its smartphones, the company’s strong results reflect its critical role in the industry ecosystem. The company also provided an optimistic revenue forecast for the fourth quarter.
Taiwan Semiconductor reported quarterly net sales of $33.1 billion (989.9 billion New Taiwanese dollars), up 30.3% year-over-year (Y/Y), topping the analyst consensus estimate of $31.5 billion. Net sales grew 6.0% quarter over quarter (Q/Q).
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Net income and earnings per share were $15.10 billion (451.76 billion New Taiwanese dollars) and $2.92 (87.22 New Taiwanese dollars), up by 39.0% Y/Y, topping the analyst consensus estimate of $2.59.
In U.S. dollar terms, revenue growth was 40.8% Y/Y and up by 10.1% Q/Q. The top-line performance topped the company’s guidance of $31.8 billion to $33.0 billion.
Technology and Platform Revenue Breakdown
The company stated that 3-nm technologies accounted for 23% of the total revenue, 5-nm technologies accounted for 37%, and 7-nm technologies accounted for 14%. Advanced technologies (7nm and below) accounted for 74% of total wafer revenue.
By platform, High-Performance Computing (HPC) and Smartphones represented 57% and 30% of net revenue, respectively, while IoT, Automotive, DCE, and Others each represented 5%, 5%, 1%, and 2%, respectively.
From a geographic perspective, revenue from customers based in North America accounted for 76% of total net revenue in 3Q25. In contrast, revenue from Asia Pacific, China, Japan, and EMEA (Europe, the Middle East, and Africa) accounted for 9%, 8%, 4%, and 3% of total net revenue, respectively.
Profitability and Capital Spending
Taiwan Semiconductor’s AI technology moat helped it expand its quarterly gross margins by 170 basis points to 59.5%, topping the company’s quarterly guidance of 55.5% to 57.5%.
The operating margin expanded by 310 basis points to 50.6%, exceeding the company’s quarterly outlook of 45.5% to 47.5%.
Free cash flow decreased by 60.5 billion New Taiwanese dollars to an inflow of 139.4 billion New Taiwanese dollars in the quarter, as a result of lower operating cash flow.
Capital expenditures on a consolidated basis totaled $9.70 billion in the third quarter of 2025.
The board approved a 5.00 New Taiwanese dollars cash dividend for the second quarter of 2025.
Management Commentary on AI Growth
“Our business in the third quarter was supported by strong demand for our leading-edge process technologies,” said Wendell Huang, Senior VP and CFO of TSMC. “Moving into fourth quarter 2025, we expect our business to be supported by continued strong demand for our leading-edge process technologies.”
According to Reuters, CEO C.C. Wei has expressed a growing conviction in the AI megatrend, noting that demand for artificial intelligence remains stronger than anticipated.
During an earnings call, Wei stated, “AI demand actually continues to be very strong, more strong than we thought three months ago.”
He added that the company is receiving “very strong signals” directly from its customers’ customers, who are requesting increased capacity to support their business needs. This consistent and powerful demand further reinforces the company’s positive outlook on the future of AI.
Outlook
Taiwan Semiconductor guided fourth-quarter 2025 revenue of $32.20 billion to $33.40 billion, versus the $31.97 billion analyst consensus estimate. It expects a gross margin of 59% to 61% and operating profit margins of 49% to 51%.
Taiwan Semiconductor stock has gained over 54% year-to-date.
Price Action: TSM stock was trading higher by 1.80% to $310.20 premarket at last check Thursday.
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