NEW YORK, July 16, 2026, 09:59 (EDT) – TSMC (NYSE:TSM; TPE:2330) shares fell. The firm posted record profit. But cash flow remains under pressure.
- TSMC’s ADRs fell 2.9% to $407.46 by 09:44 EDT.
- Company data show free-cash-flow conversion dropped to 40.7%, down from 60.8%.
- TSMC set its 2026 capex midpoint at $62 billion, up 14.8%.
Taiwan Semiconductor Manufacturing Co (NYSE:TSM; TPE:2330) ADRs slid 2.9% at the open in New York. Investors saw record profit, but doubts about cash conversion stayed.
Second-quarter filings point to a split. Net income jumped 23.4% from March. But free cash flow dropped 17.5%.
Company data shows free-cash-flow conversion at 40.7%. It dropped from 60.8% last quarter. Capital spending jumped 41.4% to NT$496 billion.
The quarter-to-quarter gap stands out.
| Metric | Q2 2026 | Q1 2026 | Sequential change |
|---|---|---|---|
| Net income (NT$ billion) | 706.56 | 572.48 | +23.4% |
| Operating cash flow (NT$ billion) | 783.36 | 698.97 | +12.1% |
| Capital expenditure (NT$ billion) | 496.00 | 350.76 | +41.4% |
| Free cash flow (NT$ billion) | 287.36 | 348.21 | -17.5% |
| Free cash flow/net income | 40.7% | 60.8% | -20.2 points |
Source: TSMC. Sequential changes and conversion ratios use reported numbers.
The gap is important as spending is climbing again. TSMC raised 2026 capex guidance to $60 billion-$64 billion, up from $52 billion-$56 billion. That is a 14.8% increase at the midpoint. “At TSMC, a higher level of capital expenditures is always correlated to higher growth opportunities in the following years,” CFO Wendell Huang said. thestandard.com.hk
TSMC raised its planned U.S. outlay by $100 billion, bringing the total to $265 billion.
Key demand gauges stayed robust. Revenue totalled $40.2 billion. Net income came in at NT$706.56 billion. Profit beat the analyst consensus by 11.7%. TSMC expects full-year dollar sales to grow a bit above 40%.
That profit’s quality was mixed. Non-operating items jumped over threefold. Gains of NT$63.2 billion came from a stake sale and mark-to-market moves.
TSMC said it expects third-quarter revenue between $44.6 billion and $45.8 billion. The midpoint suggests sequential growth of 12.4%. But the midpoint for operating margin drops 3.3 percentage points to 57%.
Two-nanometer output sped up fast. It made up 3% of wafer revenue. Advanced process nodes brought in 77%. Inventory days climbed to 87, up from 80, due to the N2 ramp.
The selloff hit more than just the one firm. At the same time, the iShares Semiconductor ETF NASDAQ:SOXX dropped 3.5%. That fall was about 0.6 point steeper than TSMC’s. Chip stocks faced wide risk.
Taiwan stocks finished up 1.23% at NT$2,470. The cash market closed at 13:30. TSMC’s earnings call came at 14:00.
The balance sheet gives some protection. Net cash reserves reached NT$2.49 trillion at the end of the quarter. That eases funding risk. It does not shield against return risk.
Execution holds the main risks now. Gross margin slipped as overseas fabs grew. The N2 ramp pushed inventory higher. If demand drops, it gets tougher to claw back the fresh costs.
Cash is now in focus for stocks. Investors want to see if third-quarter free cash flow lines up with revenue and profit.
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