Taiwan Semiconductor Manufacturing Company (NYSE:TSM) reported results on July 16, 2026, triggering a selloff that extended the stock’s decline for the month.
A Record Quarter, A Falling Stock
Taiwan Semiconductor Manufacturing Company (NYSE:TSM) delivered one of the strongest quarters in its history in July 2026. The stock still lost close to 15% of its value the same month.
Second quarter net profit rose 77% year-over-year to a record T$706.6 billion ($22 billion), beating the LSEG consensus estimate of T$632.6 billion ($19.65 billion) and marking its ninth straight quarter of double-digit growth. TSM raised its full-year 2026 revenue growth (U.S. dollar terms) outlook to slightly above 40% from above 30% and guided third-quarter sales to $44.6 billion to $45.8 billion, which compared strongly to $33.1 billion a year earlier. CEO C.C. Wei said customer demand kept conviction very high in the multi-year AI megatrend.
Pixabay/Public Domain
What Wall Street Expected Going Into the Results
Susquehanna’s Mehdi Hosseini raised his target to $575 from $500 on June 22, 2026, expecting TSM’s capex plans to exceed consensus and buy-side expectations. Bank of America raised its target to $590 from $490 on June 24, 2026, lifting its 2026 and 2027 sales growth forecasts to 40% and 39%.
Capex was the number to watch: Taiwan Semiconductor Manufacturing Company (NYSE:TSM)’s prior guidance topped out at $52 billion to $56 billion, and BofA’s Asia semiconductor analyst forecast a raise to roughly $58 billion.
The Beat Wasn’t Clean Enough
Taiwan Semiconductor Manufacturing Company (NYSE:TSM)’s actual capex guidance for 2026 came in at $60 billion to $64 billion, about 14% above the prior range and above even the raised pre-earnings estimates. TD Cowen called the new target modestly above market expectations of about $60 billion in a July 17, 2026 note.
TSM’s gross margin of 67.7% beat its own guidance but missed higher buy-side estimates on Wall Street. Barclays, which raised its target to $650 from $625, called the in-line margin guidance a modest disappointment. Next quarter’s margin guidance of 65% to 67% came in lighter, tied to early costs on the ramping two-nanometer node.
While analysts remained watchful of the costs behind growth, they continued to support TSM’s long-term outlook, with DA Davidson raising its price target to $500 from $450, TD Cowen lifting its target to $440 from $400, and Barclays increasing its target to $650.
Spending, Not Weak Results, Drove the Selloff
Taiwan Semiconductor Manufacturing Company (NYSE:TSM) added a $100 billion Arizona commitment on top of its raised capex plan, bringing total U.S. investment pledges to $265 billion. CFO Wendell Huang said spending over the next three years would run even higher than the past three, while flagging a construction worker shortage in Arizona.
TSM’s Taipei shares fell 7.3% that week, and its U.S. ADRs fell 6% on earnings day.
Wall Street Is Repricing AI Spending
The pressure was not TSM-specific. The Philadelphia Semiconductor Index closed the week of July 17, 2026, more than 20% below its late-June high, entering a bear market, even though it remained up 65% year-to-date. Samsung Electronics reported a nineteen-fold jump in profit the week before and was sold anyway. ASML Holding N.V. (NASDAQ:ASML) raised its 2026 sales forecast the same week and drew a similarly muted reaction.
The chip selloff spilled into broader tech, pulling the Nasdaq down more than 4% that week as investors dumped AI-adjacent names beyond semiconductors.
However, Apple Inc. (NASDAQ:AAPL), which spends far less on AI infrastructure, briefly became the world’s most valuable company, as growing doubt over whether hundreds of billions in AI spending will pay off turned restraint from a weakness into discipline.
The Structural Tailwind: Compute Is Still Scarce
That week offered a counterpoint. Moonshot AI released Kimi K3, a 2.8 trillion parameter open-weight model, on July 17, 2026, calling it the largest open-weight AI system built to date. Three days later, it paused new subscriptions after demand overwhelmed available compute and split access into separate consumer and coding tiers.
A cheaper, competitive open-weight model hitting a hard compute ceiling within days of launch shows that AI infrastructure demand continues to outpace available capacity, creating a tailwind for Taiwan Semiconductor Manufacturing Company (NYSE:TSM), the world’s largest dedicated contract chip manufacturer.
Institutions Are Not Stepping Back
Smart money has been strongly backing TSM, according to the latest positioning data. Insider Monkey’s database shows 234 hedge funds held TSM at the end of the first quarter of 2026, up from 187 a year earlier, a gain of roughly 25%, while the total value of their holdings nearly doubled to $39.2 billion from $19.7 billion. Short interest fell to 27.73 million shares as of June 30, just 0.57% of the public float, indicating very limited bearish positioning.
The Investment Takeaway
Therefore, TSM’s decline is not a story about fading AI demand, but about investors recalibrating the price of funding its next phase of growth. Wall Street is discounting the stock for the cost of the buildout even as record earnings, compute-starved rivals, and steady hedge fund buying indicate that the AI growth story is far from over.
While we acknowledge the risk and potential of TSM as an investment, our conviction lies in the belief that some other AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is much cheaper than TSM and that has 10,000% upside potential, check out our report about the cheapest AI stock.
READ NEXT: 33 Stocks That Should Double in 3 Years and Cathie Wood 2026 Portfolio: 10 Best Stocks to Buy.
Disclosure: None. Follow Insider Monkey on Google News.
Hedge Fund Resource Center