According to Deutsche Bank's October 20 research note, the most memorable part of Taiwan Semiconductor Manufacturing (NYSE: TSM) latest earnings report is not the numbers, but a statement from CEO C.C. Wei on the earnings call: "We have no intention of giving away the benefits to others. We intend to capture all possible business." Deutsche Bank's interpretation is straightforward: TSMC wants to enjoy this feast alone, leaving only breadcrumbs for Samsung and Intel. In its view, this points to one conclusion — TSMC will raise capital expenditure significantly again in 2027 and 2028. Deutsche Bank maintains a Buy rating on TSMC with a target price of NT$3,000.
Earnings: A sixth consecutive record-breaking quarter
The third-quarter report released on October 15 was solid on its own: consolidated revenue of NT$1,494.24 billion, up 50.9% year over year, or US$46.72 billion, up 41.2% in dollar terms, exceeding the company's previous guidance range of US$44.6 billion to US$45.8 billion; after-tax net profit of NT$763.06 billion, up 68.7% year over year, marking the sixth consecutive quarter of record single-quarter profit; earnings per share of NT$29.43, higher than NT$27.25 in the second quarter; operating margin of 58.7%, net margin of 51.1%, and ROE of 45.5%.
In terms of structure, third-quarter gross margin was 66.4%, down 1.3 percentage points sequentially, which the company attributed to the early ramp-up of 2-nanometer production, estimated to have eroded 2 to 3 percentage points. By process node, 2nm accounted for 8% of wafer revenue, while 3nm, 5nm, and 7nm accounted for 33%, 28%, and 10%, respectively, with 7nm and below totaling 79%. By platform, high-performance computing (HPC) accounted for 68% of revenue, up 22% sequentially; smartphones accounted for 21%; automotive electronics and IoT each accounted for 4%; and consumer electronics accounted for 1%.
Outlook also revised upward
The company expects fourth-quarter revenue of US$52.3 billion to US$54.3 billion, gross margin of 65% to 67%, and operating margin of 56.5% to 58.5%, and raised its full-year 2026 dollar revenue growth guidance from "slightly above 40%" to approximately 44%. In addition, TSMC decided to build another 3-nanometer fab in Tainan and said full-year capacity for the 2-nanometer family will more than double in 2027.
Capex: US$84 billion and US$100 billion, one notch above consensus
Deutsche Bank raised its 2027 and 2028 capex forecasts for TSMC to US$84 billion and US$100 billion, respectively, corresponding to market consensus of US$76 billion and US$88 billion. There are two drivers: a steeper and larger-scale capacity ramp for the A14 process, and continued expansion of N3, the latter mainly for server CPUs. As background, TSMC's third-quarter capex was US$13.84 billion, with the first three quarters totaling US$40.64 billion, and the company maintained its full-year 2026 capex plan of US$60 billion to US$64 billion. In other words, Deutsche Bank's forecast of US$84 billion for 2027 implies another major step up from 2026 — the research note gives a 2027 capex year-over-year growth rate of 34%.
It should be noted that the company was not this optimistic on the call. C.C. Wei also cautioned that, affected by component price increases and macroeconomic uncertainty, TSMC will remain "cautious" in its business planning for 2027. This is one point of tension between Deutsche Bank's projection and the company's remarks.
Why only TSMC can do this: the speed of capacity ramp-up
Deutsche Bank's rationale is the asymmetry in execution capability. It believes TSMC's ability to rapidly expand fab capacity is unmatched by Intel and Samsung — "we believe neither of these two competitors can ramp a single fab at even half the speed of TSMC." Therefore, when the "big six" customers — Apple, Nvidia, AMD, Broadcom, MediaTek, and Qualcomm — all face pressure over capacity allocation, it is logical for TSMC to send assurances to advanced-node customers that "I can supply enough."
Who gets squeezed out: mature-node customers need to look elsewhere
The other side of the feast is that there is no place left on the menu for traditional customers. Deutsche Bank noted that explosive growth in AI-related foundry demand at 3nm and below is rapidly eroding the relative importance of 28nm to 90nm mature nodes for TSMC. Earlier this year, reports said TSMC may have already cut 28nm wafer capacity for traditional customers at Fab 15A by 25%, freeing up capacity for interposers — a signal worth noting for traditional IDMs such as STMicroelectronics that rely on outsourcing and focus on industrial and automotive markets, especially as new fabs in Dresden (ESMC), Japan (JASM), and Vanguard (VSMC) gradually come online. If TSMC ultimately converts Fab 15A, with monthly capacity of 200,000 wafers, entirely to 4nm, many traditional mixed-signal customers will need to find another home — either moving to other TSMC sites or turning to alternative foundries such as UMC, GlobalFoundries, and SMIC. Deutsche Bank judges that re-qualification activity for microcontrollers, connectivity, and RF products at mature nodes will increase noticeably.
Following this thread, Deutsche Bank connected several developments: TSMC has signed an agreement with GlobalFoundries for interposers, and GlobalFoundries announced a new fab in Malta, New York, with traditional TSMC customers such as Renesas becoming anchor tenants — the new fab will mainly produce 22nm FDSOI, 55nm BCD, and 40/22nm bulk gate-last. The conclusion is that from STMicroelectronics, Microchip Technology, and Cirrus Logic to Nordic Semiconductor, all should prepare for "somewhat less supply from TSMC in the future." At a time when mature foundry capacity is tightening rapidly, Deutsche Bank believes this is a tailwind for companies such as GlobalFoundries, which Deutsche Bank rates Buy, especially given the manufacturing reshoring trend and substantial government subsidy funding.
Earnings forecasts and target price: EPS raised 1% to 4%, target price maintained at NT$3,000
After the third-quarter results, Deutsche Bank raised its overall EPS forecasts for TSMC by 1% to 4%: 2026 revenue forecast from NT$5.47 trillion to NT$5.6 trillion, up 2.9%; operating margin from 59.9% to 60.2%; net profit from NT$2.8 trillion to NT$2.9 trillion, up 3.8%. Deutsche Bank specifically noted that it continues to forecast greater profit dilution from TSMC's overseas fabs than market consensus, even assuming continued wafer price increases. Even so, it still expects 2027 to be another very strong year: dollar-denominated sales growth of 45%, above the 37% consensus, alongside a sharp year-over-year increase in capex. This 8-percentage-point gap comes from Deutsche Bank's more optimistic assumptions about the pace of the A14 ramp and N3 expansion; the research note does not break down the difference item by item, and citations should not calculate it on its behalf.
According to Deutsche Bank's model, TSMC's 2027 revenue will be NT$8.147 trillion and net profit NT$3.977 trillion, corresponding to EPS of NT$153.38; 2028 revenue will exceed NT$10 trillion, with EPS rising to NT$190.86. On valuation, the NT$3,000 target price remains unchanged, equivalent to 16 times 2028 expected earnings, in line with the peer group at 16 times. Deutsche Bank said this level reflects both TSMC's solid market position and high growth continuing into 2028, as well as ongoing geopolitical risks and pressure on U.S. customers to purchase from Intel. Risks listed by Deutsche Bank include: execution risk; the advanced-node value proposition falling short of expectations; government intervention forcing customers to consider alternative foundries; tight capacity instead opening a window for competitors; delays in High-NA EUV progress; and geopolitical risk related to China and Taiwan. There are also three more specific ones: a sudden slowdown in AI infrastructure-related spending, which will account for more than 40% of sales by 2027; execution missteps in the CoWoS capacity ramp; and Intel's attempt to bring production back in-house.
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