TSMC’s profit rose 68.7% in the third quarter, and Samsung expects its operating profit to come in almost nine times higher than a year ago. Numbers like that would usually settle any argument about a share price. With chip stocks, though, the argument has moved on to what investors have already paid for, since much of this growth was priced in months before it showed up in the results. The useful thing to look at now is everything around the profit figure, like margins, spending plans and how long demand can stay this strong.
Quick answer: Chip stocks can justify their valuations as long as earnings keep growing fast enough to match what the market has priced in. TSMC and Samsung both posted record results in October 2026, but slipping margins at TSMC, heavy capital spending and the cyclical history of memory prices are the details investors are weighing against the headline growth.
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What TSMC’s Third-Quarter Results Showed
TSMC makes the most advanced chips for companies like Nvidia, Apple and AMD, which makes its results one of the clearest reads on AI hardware demand. Its third quarter beat its own guidance on revenue.
| TSMC, Q3 2026 | Result |
|---|---|
| Revenue | US$46.72 billion, up 41.2% in dollar terms |
| Net income | Up 68.7% from a year earlier |
| Gross margin | 66.4% |
| Operating margin | 58.7% |
| 3nm and 5nm share of wafer revenue | 61% |
| Q4 revenue guidance | US$52.3 billion to US$54.3 billion |
Figures from TSMC’s third-quarter earnings release.
Management now expects revenue to grow about 44% in dollar terms for the full year, and CEO C.C. Wei told analysts on the earnings call that AI demand is extremely strong, with orders still running well ahead of supply.
What Samsung’s Record Quarter Says About AI Memory
Samsung published its preliminary third-quarter figures on October 8. It expects sales of about 195 trillion won and operating profit of about 107.4 trillion won, up from 12.17 trillion won a year earlier, according to its earnings guidance.
Most of that comes from memory. AI servers need huge amounts of high-bandwidth memory, or HBM, and prices for memory chips have climbed as demand outran supply. A few details from Korea JoongAng Daily’s preview add useful context.
- Samsung held 33% of the HBM market in the second quarter, behind SK hynix at 50%
- A stronger won works against Samsung, because chip orders are priced in dollars and profits are reported in won
- Micron says it has already committed more than 75% of its 2027 output, a sign the shortage could run for a while yet
What Chip Investors Look at Beyond Profit Growth
A record quarter tells you what happened. The share price is a bet on what happens over the next few years, and these are the details that shape that bet.
Margins
TSMC’s gross margin fell 1.3 percentage points from the second quarter to 66.4%. CFO Wendell Huang put that down to the early ramp of its 2nm chips, which cost more to make while output is still building. He also said the margin drag from TSMC’s overseas factories, closer to 2 percentage points today, is expected to widen to 3 to 4 points in the next few years as more US plants come online. Small moves in margin matter less on their own than the direction they’re heading.
Capital Spending
TSMC reiterated a 2026 capital budget of US$60 billion to US$64 billion. Heavy spending shows confidence in future demand, and it also adds depreciation costs for years to come. If demand slows before the new factories are full, those costs weigh on margins at exactly the wrong time.
Demand Expectations
Investors are paying for growth that stretches years ahead. TSMC has guided that revenue from AI accelerators could grow at a mid to high 50s percentage rate each year between 2024 and 2029, and Wei said the final figure could be higher. Any change to that outlook moves the stock far more than a small beat or miss in a single quarter.
What’s Already Priced In
When a stock trades on a high multiple of its expected earnings, strong results are often treated as the minimum. A company can beat forecasts and still see its share price slip if guidance falls short of the most optimistic estimates. Our guides to judging if a company is cheap and to the strengths and limits of the P/E ratio explain how those multiples work.
Logic Chips vs Memory Chips
TSMC and Samsung both sit at the center of AI hardware, but their businesses behave differently through a cycle.
| TSMC (logic chips) | Samsung (memory chips) | |
|---|---|---|
| What it sells | Manufacturing for chips designed by other companies | Its own DRAM, HBM and NAND memory |
| How prices are set | Long-term contracts with relatively stable pricing | Market prices that can rise and fall sharply |
| Main earnings driver | Demand for advanced manufacturing nodes | Memory prices and supply |
| Key risk | Customers cutting AI spending, overseas cost pressure | Supply catching up and memory prices falling |
Memory has a long history of boom and bust. When prices rise, producers build more capacity, and when that capacity arrives, prices can fall quickly. Some Korean analysts expect DRAM price gains to cool in the fourth quarter as Samsung competes with Chinese producers like CXMT and YMTC, while most of the industry still expects the shortage to last into 2027.
How to Read the Next Chip Earnings Report
- Gross margin against guidance: a margin at the low end of the range can matter more than a revenue beat
- Next-quarter guidance: the forecast tends to move the share price more than the quarter just reported
- Capital spending plans: rising budgets point to confidence, while cuts can signal caution about demand
- Inventory levels: a build-up of unsold chips is often the first sign a cycle is turning
- Currency effects: a stronger won or Taiwan dollar can trim reported profits even when demand is steady
Our guide to reading an earnings report beyond revenue and EPS goes through each of these in more detail, and the economic calendar shows when the next round of results is due.
Frequently Asked Questions
Are semiconductor stocks overvalued?
Semiconductor stocks look expensive on traditional measures like the P/E ratio, and those prices hold up only if earnings keep growing quickly. TSMC and Samsung both reported record profits in October 2026, which supports valuations for now. A slowdown in AI spending or a fall in memory prices could make today’s prices look stretched.
What is HBM memory?
HBM, or high-bandwidth memory, is a type of memory chip stacked in layers and placed right next to the processor. It moves data much faster than standard memory, which AI chips need to train and run large models. SK hynix, Samsung and Micron are the main makers, and HBM sells at much higher prices than ordinary DRAM.
Why do chip stocks fall after good earnings?
Chip stocks can fall after good earnings when the results don’t beat the market’s highest expectations, or when guidance, margins or spending plans disappoint. Investors often buy ahead of results, and if the numbers only match what’s already priced in, some take profits. The forecast for the next quarter usually moves the price most.
What is TSMC’s gross margin?
TSMC’s gross margin was 66.4% in the third quarter of 2026, down from about 67.7% in the second quarter as its new 2nm chips began production. The company has guided a fourth-quarter gross margin of 65% to 67%, and expects its overseas factories to dilute margins more over the next few years.
