Moody's upgrades TSMC to Aa2 as AI demand persists
Key Facts
Moody's upgraded Taiwan Semiconductor Manufacturing Co.'s issuer rating to Aa2 from Aa3, CNBC-e reported, linking the move to sustained demand for artificial intelligence applications. The agency revised the company's outlook to stable from positive following the upgrade. The decision extended to senior unsecured debt ratings for its financing subsidiaries, according to Investing.com. The website also attributed the upgrade to the company's dominant market share in the semiconductor industry. The decision follows revenue and profit growth in the third quarter of 2026, with U.S. dollar sales exceeding the company's previously announced guidance range.
According to the company's quarterly earnings statement, consolidated revenue in the third quarter reached 1,494.24 billion Taiwan dollars, up 50.9% year on year. Net profit reached 763.06 billion Taiwan dollars over the same period. Both net profit and diluted earnings per share rose 68.7% from the corresponding quarter a year earlier. In U.S. dollar terms, quarterly revenue reached 46.72 billion, according to the company's table comparing actual results with guidance. The company had set a revenue range of 44.6 to 45.8 billion U.S. dollars, with the result exceeding the upper end.
By business segment, management said during the earnings call that high-performance computing revenue rose 22% from the previous quarter. The business accounted for about 68% of total third-quarter revenue, according to the call transcript. On profitability, the company's gross margin reached 66.4% during the period, according to its quarterly results. Operating margin was 58.7%, alongside the revenue growth announced in the company's statement. Discussing cost pressures, management cited "margin dilution from the ramp-up of two-nanometer technology," identifying one factor affecting gross margin as production expands.
The earnings presentation showed cash flow from operating activities reached 919.77 billion Taiwan dollars in the third quarter of 2026. The company compared that with operating cash flow of 783.36 billion Taiwan dollars in the second quarter of the same year. In the third quarter of 2025, operating cash flow stood at 426.83 billion Taiwan dollars, according to the comparison in the presentation. Capital expenditure in the third quarter totaled 443.21 billion Taiwan dollars, against the cash generated by operating activities during the period. For 2026, management confirmed during the earnings call that the annual capital expenditure budget was within a range of 60 to 64 billion U.S. dollars.
The company's free cash flow reached 476.56 billion Taiwan dollars in the third quarter, according to the earnings presentation, alongside the increase in cash generated from operations. Free cash flow had totaled 287.36 billion Taiwan dollars in the previous quarter, according to the comparative figures provided by the company. In the corresponding period a year earlier, it stood at 139.38 billion Taiwan dollars, putting the latest figure above both its quarterly and annual comparators. On other credit assessments, the company's ratings page lists an S&P rating of AA-. The page pairs that rating with a positive outlook, compared with the stable outlook adopted by Moody's following the upgrade.
For the fourth quarter of 2026, the company expects revenue of 52.3 to 54.3 billion U.S. dollars, according to its quarterly guidance. The entire target revenue range is above the actual third-quarter result. The company expects a gross margin of 65.0% to 67.0%, a range that includes the margin recorded in the previous period. Expected operating margin ranges from 56.5% to 58.5%, below the actual third-quarter level at both ends. The guidance comes as the company continues the capital expenditure program management confirmed for the current year. The company is scheduled to announce October sales on 10 November 2026, according to its financial calendar.