Core Viewpoint - TSMC reported record net profit for Q3 2025, but its stock price opened high and then fell due to market expectations of stronger AI demand and tight capacity, while TSMC remained conservative without increasing its capacity guidance or updating its CoWoS plans [1][5][11] Financial Performance - Q3 revenue reached $34.14 billion, a 30% year-over-year increase, with net profit of $15.5 billion, up 39% year-over-year [2][7] - Q3 gross margin improved to 59.5%, exceeding analyst expectations of 57.1%, while operating margin rose to 50.6% [1][7][10] - Q4 revenue guidance indicates a slight decline of 1% quarter-over-quarter, reflecting full capacity utilization [1][9] AI Demand and Market Trends - TSMC's Chairman noted that AI demand is significantly stronger than three months ago, driven by exponential growth in tokens, which are doubling approximately every three months [4][5][12] - The company is adopting a "Foundry 2.0" strategy to integrate advanced packaging and system-level performance optimization to meet AI-driven semiconductor demand [4][30] - TSMC's clients, including Nvidia, are increasingly relying on TSMC for chip production, indicating sustained demand for GPU chips [3][6] Capacity and Capital Expenditure - Q3 capital expenditure was $9.7 billion, with a total of $29.39 billion for the first nine months, reflecting ongoing capacity expansion to meet high demand [2][11] - TSMC plans to allocate 70% of its 2025 capital budget to advanced process technologies, with total capital expenditure expected to be between $40 billion and $42 billion [11][12] Customer Signals and Industry Outlook - TSMC is receiving strong signals from its customers' customers for increased capacity to support their business, reinforcing confidence in the fundamental demand for semiconductors [5][13] - The company is closely monitoring AI-related demand and is prepared to expand capacity in response to structural growth in the market [12][14] Global Manufacturing and Expansion Plans - TSMC is accelerating capacity expansion in Arizona, with plans for advanced packaging facilities to support customer needs [15][26] - The company is also expanding its manufacturing footprint in Japan and Europe, with ongoing projects in Kumamoto and Dresden [15][16] Technology and Innovation - TSMC's N2 technology is on track for production later this year, with expectations for rapid capacity ramp-up driven by demand in AI and high-performance computing applications [16][28] - The company emphasizes the importance of system-level performance over traditional transistor scaling, aligning with industry shifts [6][30]

Core Viewpoint - Market concerns about AI capital expenditure (capex) potentially peaking in 2026 are prevalent, but JPMorgan presents a counterargument based on four key points: no signs of overheating in generative AI, continuous entry of new investment players, significant expansion of AI application scenarios, and the potential demand release in the Chinese market [1][2]. Group 1: AI Capital Expenditure Insights - JPMorgan predicts that AI capex growth will reach at least 20% in 2026, with further growth expected in 2027 if the penetration rate of reasoning models continues to rise [3]. - The top four cloud service providers (CSPs) are expected to maintain strong capital expenditure supported by robust operating cash flow, with a projected cumulative EBITDA and operating cash flow CAGR of 23% from 2022 to 2026 [5][4]. - The capital expenditure of the top four CSPs is anticipated to increase from $150 billion in 2022 to a projected $398 billion in 2026, with a consensus forecast showing a cumulative free cash flow CAGR of 16% [7]. Group 2: New Investment Players and Market Dynamics - New players, including private AI labs and sovereign funds, are entering the AI capex space, enhancing investment capabilities despite concerns about spending stability [9]. - The Chinese CSP market is just beginning its AI investment journey, with significant spending intentions from companies like ByteDance and Alibaba, although supply constraints from GPU availability pose challenges [10]. Group 3: Supply Chain and Growth Projections - The Google TPU supply chain is expected to experience the fastest growth in 2026, driven by strong internal demand and recovery from previous supply issues [11]. - NVIDIA's supply chain is projected to maintain robust growth in 2026, with no significant delays anticipated in production schedules [13]. - The ODM sector is showing strong performance, particularly with companies like Hon Hai, which have seen significant stock price increases due to strong demand for NVIDIA products [15]. Group 4: Pricing Trends and Earnings Adjustments - Discussions of price increases across various non-AI sectors are emerging, which could drive the next round of earnings per share (EPS) adjustments [16]. - The Asian technology sector is experiencing a pause in earnings revisions, but future price increases and sustained AI demand are expected to be key drivers for further EPS adjustments [17][18].