Key Points
TSMC earned a record NT$763.1 billion in the third quarter, up 68.7% from a year ago, on revenue of $46.72 billion. It guided fourth-quarter sales to as much as $54.3 billion.
Its U.S.-listed shares still fell 1.8% to $422.25, as the global chip selloff rolled on. South Korea's Kospi plunged 7.6%, with SK hynix down 11%.
Wholesale prices jumped 1.3% in September, the biggest monthly gain since March 2022, and 6.3% from a year ago. Economists expected 0.5% and 5.4%.
Treasury yields fell anyway. The 10-year yield dropped about 10 basis points to roughly 5.09% as Fed officials sounded less urgent about raising rates.
Money rotated out of AI and into the rest of the market. The Dow jumped 1.1%, or 556 points, while the PHLX Semiconductor Index slipped 0.9%.
The world's most important chipmaker just had the best quarter in its history.
Taiwan Semiconductor makes the advanced processors inside nearly every AI system on the planet. On Thursday it reported its sixth straight quarter of record profit, beat Wall Street on both lines, and raised its outlook for the year.
The stock fell 1.8% to $422.25.
That's two days in a row the AI supply chain has delivered a blowout and watched its shares go the wrong way. On Wednesday, it was ASML, which said it can't build its machines fast enough. On Thursday, it was TSMC.
The problem isn't demand. It's who pays for it.
The Numbers Were Close to Perfect
TSMC earned $4.60 per U.S. share, ahead of the $4.46 analysts expected, according to FactSet. Revenue of $46.72 billion came in above the company's own guidance and grew 41% from a year ago in dollar terms.
Operating margin hit 58.7%, above the top of TSMC's guidance range. Gross margin slipped 1.3 points to 66.4% as the company ramps up its newest 2-nanometer chips, which already make up 8% of wafer revenue.
The outlook was even better. TSMC expects fourth-quarter revenue of $52.3 billion to $54.3 billion, up as much as 61% from a year ago. It now sees full-year growth of about 44%, and it reaffirmed plans to spend $60 billion to $64 billion on new capacity this year. Much of that money goes straight to equipment makers like ASML, whose customers are already asking for machines in 2029 and 2030.
"The AI market continues to be very strong," CEO C.C. Wei told analysts.
Why the Stock Didn't Care
Investors aren't worried that AI demand is fading. They're worried about the bill.
Twenty of the most valuable AI and chip stocks in the world have lost more than $1 trillion in value this week, according to CNBC. Earlier this week, Broadcom CEO Hock Tan warned that financing could become a bigger obstacle to the AI boom than shortages of chips or electricity.
With the 10-year Treasury yield above 5%, the companies borrowing to build data centers face a much higher cost of money. Dan Ives of Yorkville Ives put it simply: "Rates are a financing question, not a demand question."
The market treated it as both. South Korea's Kospi plunged 7.6% to its lowest close since April, triggering its first circuit breaker since July. SK hynix fell 11%, and Samsung dropped 9.5%. In the U.S., the damage was milder. The PHLX Semiconductor Index fell 0.9%, after dropping 4.3% on Wednesday. Nvidia lost 1.8%, AMD slipped 1.5%, and Broadcom dipped 0.6%. ASML's U.S. shares managed a 0.5% gain after Wednesday's drop, and Micron rose 1.9%.
Wholesale Inflation Just Hit a Four-Year High
The inflation news got worse, too.
The producer price index jumped 1.3% in September, the biggest monthly increase since March 2022. Over the past year, wholesale prices are up 6.3%, the most since December 2022. Excluding food and energy, prices rose 0.7% for the month.
Shoppers kept spending anyway. Retail sales rose 0.8% in September, well above the 0.3% forecast, although a big chunk of that went to gasoline. Weekly jobless claims stayed low at 199,000.
Normally, a report like that would send bond yields higher. Instead, they fell. The 10-year Treasury yield dropped about 10 basis points to roughly 5.09%, and the 2-year yield slipped to about 4.76%. The 30-year yield fell to about 5.43%.
The Fed also sounded calmer. San Francisco Fed President Mary Daly said more hikes are likely but added, "I don't feel urgent." By Thursday, futures put the odds of an October hike at just 29%, though traders still see a 91% chance of at least one hike by December.
Money Rotated, It Didn't Leave
Investors didn't run from stocks on Thursday. They just moved away from AI.
The Dow jumped 556 points, or 1.1%, to about 52,178. The S&P 500 added 0.3% to about 7,744, while the tech-heavy Nasdaq finished nearly flat, up 0.1% at about 26,713. The VIX, Wall Street's fear gauge, eased 2.6% to 16.43.
Walmart rose 1.5% after a Deutsche Bank upgrade, and Nike climbed 5.2%. Software stocks bounced, too. ServiceNow jumped 6.1% after denying reports that it was in talks to buy Decagon, and Salesforce gained 4.6%. Kimberly-Clark added 4.7%.
The big banks were mixed after another round of earnings. U.S. Bancorp rose 2% after reporting record revenue of $7.97 billion. PNC slipped 0.4% despite adjusted earnings of $5.09 a share. Charles Schwab fell 2.7% even after posting record revenue and beating estimates with earnings of $1.69 a share.
Among the biggest movers, Penske Automotive soared 8.8% to $212.00, matching the price in a take-private deal. CoreWeave rebounded 5.9% after plunging 15.5% on Wednesday. Rocket Lab fell 6.6% after pushing the launch of its Neutron rocket to 2027.
What Lands Next
Fed Chair Kevin Warsh speaks Friday, his first chance to respond to this week's inflation data before the October 27-28 meeting. Travelers and Truist report Friday morning, and Netflix kicks off big tech earnings on Tuesday.
TSMC just showed that AI demand is still growing faster than anyone can build for it. The market just showed it is more worried about what it costs to borrow the money. One of them is going to be wrong.
This article is for informational and educational purposes only and does not constitute investment advice or a recommendation to buy or sell any security.
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