TSMC’s $64 Billion Capex Plan Casts a Shadow Over a Record-Breaking Quarter

TSMC's Q2 profit soared 77% but shares fell 8.8% as $64B capex plan sparked margin concerns, with analysts calling it a 'one-time reset'.

Taiwan Semiconductor Manufacturing Co. is navigating an unusual paradox: the chipmaker just posted one of its strongest quarterly performances in history, yet its shares have fallen for seven consecutive trading days, losing 8.80% on the week to close at €347.00 in Frankfurt. The disconnect centers on the escalating cost of maintaining its technological edge.

The company’s second-quarter numbers were nothing short of exceptional. Net profit surged 77.4% year over year, revenue climbed 36% to $40.2 billion, and gross margin improved to 67.7% — above the company’s own guidance. TSMC also raised its 2026 revenue forecast to growth of “well over 40%,” up from a previous estimate of roughly 30%.

Wall Street responded with a flurry of target upgrades. DA Davidson lifted its price target to $500 from $450, maintaining a Buy rating. TD Cowen analyst Krish Sankar raised his target to $440 from $400 but kept a Hold, noting the strong outlook. Barclays went further, hiking its target to $650 from $625, calling the report “clearly positive.” Yet the market refused to follow.

The culprit, analysts say, is TSMC’s swelling capital expenditure plan. The company now expects 2026 capex of $60 billion to $64 billion — at least $4 billion more than previously projected — driven by sustained demand for AI chips that extends well into 2027. While a strong signal of future growth, the spending binge stokes fears that margins could suffer if the AI boom cools. Barclays acknowledged that gross margin guidance came in “only in line” with expectations, calling it a “slight disappointment” against an otherwise stellar report.

The sell-off was not limited to TSMC’s U.S. listing. In Taipei, the stock plunged 7.3% in a single session, contributing to a broader market correction that saw Taiwan’s benchmark index lose over 2,700 points. TSMC shares recorded the largest one-day point decline in their history there. Strategists attributed the rout to profit-taking after an extraordinary rally, margin dilution concerns from higher capex, and a rotation of capital into other sectors.

JPMorgan characterized the margin pressure as a “one-time reset,” while UBS highlighted the signaling power of higher investment spending. But the broader semiconductor sector is under siege as well. The iShares Semiconductor ETF was headed for its worst weekly performance in over a year, and the Philadelphia Semiconductor Index (SOXX) followed a similar path. Nvidia, Micron, Broadcom, and Qualcomm all lost more than 2% in premarket trading, while AMD, Intel, and Marvell Technology fell over 3%. ASML, which also reported strong numbers and raised its 2026 outlook this week, saw its shares decline as well. JPMorgan strategists described an “aggressive retreat” from memory and hardware stocks without any single negative catalyst, suggesting that expectations have become so elevated that even record results fail to excite.

Technically, TSMC’s Frankfurt-listed shares are approaching oversold territory. The 14-day Relative Strength Index stands at 37.7, and the stock trades 6.44% below its 50-day moving average of €370.90, though it remains comfortably above the 200-day average of €297.63. The 30-day annualized volatility of 52.43% underscores the turbulence since the earnings release. The pattern suggests a sharp short-term pullback within a still-intact longer-term uptrend — the stock is up 35.02% year to date and 63.68% higher than a year ago.

Two competing narratives now shape TSMC’s outlook. On one side, analysts see enduring AI demand and record profitability supporting further gains. On the other, the market is pricing in the risk that massive capital outlays may not pay off as handsomely as hoped, particularly as the ramp of 2-nanometer production is expected to temporarily depress margins in the second half of the year. Whether the stock can defend its 50-day moving average in the coming sessions will determine if this is a healthy pause in a long rally or the beginning of a deeper reassessment of AI valuations across the chip sector. For now, analyst targets remain far above current levels — but that gap will close only if risk appetite returns to the industry as a whole.