Taiwan Semiconductor Manufacturing Co. Ltd. (TSM) shares slipped in Thursday's premarket session, even as the chip giant delivered a blockbuster quarter and raised its outlook. The culprit? A massive capital spending plan that has investors wondering if the AI boom is worth the price tag.

The world's largest contract chipmaker reported second-quarter revenue of $40.2 billion, topping the analyst consensus of $39.76 billion and hitting the high end of its own guidance range of $39 billion to $40.2 billion. Net profit hit a record for the quarter at about $22 billion, fueled by insatiable demand for artificial intelligence processors.

Gross margin rose to 67.7%, up 150 basis points from the prior quarter and above company guidance. CFO Wendell Huang credited stronger cost performance and higher factory utilization, though overseas fabrication plants partially offset those gains.

Cash flow was robust: Taiwan Semiconductor generated 783 billion New Taiwan dollars in operating cash flow during the quarter and spent 496 billion New Taiwan dollars (about $15.7 billion) on capital expenditures. It ended the quarter with 3.5 trillion New Taiwan dollars (about $110 billion) in cash and marketable securities.

Raises 2026 Outlook And Capital Spending

Looking ahead, Taiwan Semiconductor expects third-quarter revenue of $44.6 billion to $45.8 billion, with a gross margin of 65% to 67%. Huang noted that the ramp of its 2-nanometer technology will reduce gross margin by about 3 to 4 percentage points, but strong customer demand and ongoing cost improvements should offset part of that impact.

The company also raised its full-year 2026 revenue growth outlook to slightly above 40% in U.S. dollar terms. And it increased its 2026 capital spending plan to $60 billion to $64 billion, up from a previous forecast of $52 billion to $56 billion. Most of that investment will support advanced process technologies.

AI Demand Continues To Drive Expansion

Chairman and CEO C.C. Wei said demand tied to artificial intelligence remains extremely robust and that the company has strong confidence in the long-term AI growth trend. He pointed to agentic AI as a driver of demand for data center CPUs, AI accelerators, and other advanced chips. Taiwan Semiconductor is working closely with customers developing x86, Arm-based, and RISC-V processors to align production capacity with long-term product roadmaps.

The company said it does not expect capacity bottlenecks as it expands production. Taiwan Semiconductor plans to invest another $100 billion in its Arizona operations, bringing its total planned investment there to $265 billion. The expansion includes multiple logic wafer fabs for 2-nanometer production and advanced packaging facilities to support long-term demand from major U.S. customers. Meanwhile, it is building 13 advanced fabrication and packaging facilities in Taiwan and expanding 3-nanometer production capacity in Taiwan, Arizona, and Japan.

CEO Takes Swipe At Rivals

Wei used the earnings call to argue that government subsidies alone will not determine long-term leadership in semiconductors, taking indirect jabs at competitors in South Korea and the U.S. While acknowledging that a South Korean rival is generating "a huge amount of money" and a U.S. competitor has "very strong U.S. government support," Wei said Taiwan Semiconductor's competitive advantage remains rooted in its technology, manufacturing expertise, and customer trust. He also argued that customers cannot easily switch foundry partners, comparing the process to something far more complex than "buying milk from 7-Eleven."

Price Action

Taiwan Semiconductor shares were down 4.60% at $400.19 during premarket trading on Thursday, according to market data.