TSMC Profit Jumps 77 Percent to a Record Even as a Chinese AI Model Helps Tip Chip Stocks Into a 20 Percent Bear Market
The two faces of the artificial-intelligence trade were on display within a single week. Taiwan Semiconductor Manufacturing Company reported a 77.4 percent jump in second-quarter net profit to a record 706.56 billion New Taiwan dollars, about 22.36 billion US dollars, and raised its spending plans, even as a powerful new model from a Chinese startup helped tip semiconductor stocks into a bear market, with the Philadelphia Semiconductor Index down more than 20 percent from its late-June peak, according to the company, Bloomberg and CNBC.
TSMC’s numbers pointed to still-robust demand. Revenue rose 36.0 percent from a year earlier to 1,270.38 billion New Taiwan dollars, or 40.20 billion US dollars, a gain of 33.7 percent in dollar terms, while the gross margin reached a record 67.7 percent and the operating margin 60.3 percent. High-performance computing, the segment that captures AI accelerators, made up 66 percent of revenue. The world’s largest contract chipmaker lifted its 2026 capital-spending plan to between 60 and 64 billion dollars from a previous 52 to 56 billion, about 15 percent higher at the midpoint on our calculation, announced a further 100 billion dollar investment in its Arizona operations that lifts its planned United States investment to around 265 billion dollars, and raised its full-year growth outlook to slightly above 40 percent in dollar terms.
The market was moving the other way. The Philadelphia Semiconductor Index closed Friday at 11,673.89, down 1.63 percent on the day, per data from CNBC, extending a July slide that Bloomberg says has erased about 3.3 trillion dollars of chip-company value since the 22 June high, after a rally of roughly 105 percent from the March low. The trigger was Kimi K3, an open-weight model released around 17 July by the Chinese startup Moonshot AI that reportedly rivals leading US systems at a fraction of the cost, reviving what analysts have called a second “DeepSeek moment”: the fear that cheaper, freely available models could undercut the case for the vast and expensive computing build-out that has driven chip valuations. The rout did not begin there, building through early July as Samsung’s results fell short and Intel shares slid, per CNBC and Forbes, before the release accelerated it. Analysts largely frame the move as a valuation and positioning reset rather than collapsing demand, with Morgan Stanley describing it as a mid-cycle reset rather than a market peak.
For the Gulf, the split matters. Regional sovereign and institutional funds are heavily positioned in the AI and chip complex, so a sharp reassessment of semiconductor valuations transmits quickly into their portfolios, while TSMC’s record margins and larger spending are the clearest read that the underlying build-out those funds are backing remains intact.
Why it matters: The week sharpened the central debate of the AI trade: whether the leadership of US chipmakers rests on spending that cheaper models could erode. TSMC, the single most important manufacturer in the supply chain, is arguing with record results and raised guidance that demand is still strong, even as the market reprices the shares of its customers. For Gulf investors concentrated in the complex, the two signals together are a reminder that concentration risk cuts both ways.
Outlook: The tells from here are whether the chip index stabilises or extends its decline, whether TSMC’s third-quarter revenue lands in its guided range of 44.6 to 45.8 billion dollars, and how next week’s megacap technology earnings address AI capital spending and returns.
Sources: TSMC; Bloomberg; CNBC; Forbes.
