Transcription
Let's be honest, today sucked if you owned a lot of high growth names or highly speculative names. But, but if you are a long-term AI investor and holding companies in the semiconductor space, TSMC did report some important information that I think it's very bullish for the long term of the market. And we're going to cover all that plus some other updates impacting companies like Nebias, companies like Corweaf. We also saw a lot of the Bitcoin miners turning hyperscalers down double digits. I want to share my overall thoughts. Let's take a closer look in today's episode.
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All right, so let's start off with TSMC. TSMC unfortunately is down roughly 1.6% uh for the day and after hours the stock is down roughly 0.5%. Regardless, this stock is doing amazing, up roughly 49% year to date. So congratulations to all the investors of TSM.
Now, TSM is that company that manufactures pretty much every AI chip that we know, from Nvidia's H100 to AMD's MI400s to uh Google's TPUs, and the list goes on and on. Now, I'm going to do a nice overview of their overall earnings. And this is why you're in this channel, right? Because you're going to get a lot of great analysis for free.
So, first, this is a Taiwanese company. So, these growth rates are going to be based on Taiwanese numbers. So, or or the new Taiwanese dollars numbers. So, revenue was up roughly 30% year-over-year. Net income was up nearly 39% year-over-year. Gross margins were up .9 percentage points sequentially and diluted earnings per share were was up 39% year-over-year. Third quarter revenue increase supported by strong demand for their leading edge process technology.
Now, if we look at the growth opportunities and this is why I said if you are an AI investor, if you invest in companies like AMD, like Nvidia, like Broadcom, you're going to want to hear this. The AI mega trend is the most significant growth driver with demand described as insane and stronger than they thought three months ago. I think that is crazy to hear from TSMC's management. If you are familiar with TSMC's management, they are pretty blunt with what's going on. They say it how it is. They never sugarcoat it. And for them to say that the demand for AI is stronger than they thought three months ago just shows how crazy this is and how we are still in this massive massive cycle in the AI industry.
Now, their full year revenue growth is now expected close to mid-30 percentage year-over-year where, if you remember at the beginning of this year, they were talking about somewhere around 20%. So massive growth compared to where we were earlier this year. The three key AI demand sources are consumer AI, enterprise AI, and sovereign AI. And all those three are individual markets. So this is what's giving them even more confidence about the AI space.
Now, in terms of end market analysis, high performance computing is still 57% of total revenue. That was flat sequentially. Smartphones is picking up 30% of total revenue, up 19% sequentially. So we are seeing kind of consumer spending on smartphones is pretty healthy. This might be bullish if you own companies like Apple or Qualcomm or maybe even MediaTek. Internet of things 5% up 20% sequentially. This is pretty bullish as we are maybe in the smart uh wearables, right? Anything in the wearable business, any form of smart gadgets, smart thermostats, smart glasses could be coming from that market. Automotive was up was 5% of total revenue and was also up 18% sequentially. DCE, which is direct consumer electronics, I believe, was down one uh was only 1% and was down 20% sequentially. Uh so overall, things are looking good even in the consumer side in the smartphone, in the IoT, and even in the automotive market. And remember, these are chips that are being built now, but the final product takes a few quarters to end up being made. So, this could kind of give us a early indication that things like the automotive market might be getting better, uh might be picking up, and it's going to be better in the next few quarters from here.
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Now, there are some things AI investors should know. First, strengthening conviction. Conviction management has mentioned that the confidence in the AI mega trend continues to increase as they receive strong demand signals directly from customers customers. So I think this is most likely like OpenAI going to TSMC and saying, look, I need you to go and make sure you build a lot of these AI chips because I need them. The next overall thing is exponential token growth. CEO highlights that the number of tokens is increasing exponentially, driving real demand for leading edge semiconductors. Next, we have severe capacity constraints. They mention actually both in the front end, which is wafer, and the back end, which is advanced packaging like co-AS, is very tight, and the company is working hard to narrow the gap between the demand and supply in 2026. Seeing that both front end and back end are somewhat capacity constrained, it is kind of bullish for semiconductor equipment companies. Also, advanced packaging is key. This high margin business is approaching 10% of total revenue, highlighting its significance for AI applications.
Now, if you are curious about some headwinds and risks for overall TSMC, foreign exchange volatility, any move in the USD versus new Taiwanese dollars could impact gross margins by 40 to 50 basis points. Oversea fab dilutions, even though it's an improvement, they now expect one or 2% in 2025 dilution from fabs here in the United States where previously it was two to 3%. It's still a dilution in margins. New technologies, when you transform to 2 nanometers or transition to 2 nanometers, initially dilutes gross margins. And the final thing, tariffs and geopolitical risk, obviously, that is a big big risk for TSM right now.
We did have some updates on their roadmaps. 2 nanometers is actually expected volume production later this quarter with a faster ramp in 2026 for both smartphones and high performance computing. The next version, which is M2P and extension of 2 nanometers, is expected in the second half of 2026. Same with A16 are scheduled for sometime later in 2026. Advanced tech 7 nanometers and below are 74% of total revenue.
Now, guidance is ex was pretty strong, roughly $33 billion at midpoint, up 22% year-over-year. Gross margins 59 to 61% for the full year. They expect revenues to be in the mid-30%s. CapEx did increase a little bit from the bottom end, now 40 to 42 billion for this fiscal year, and they believe they're going to continue to spend some nice amount of capex because it's driven by the type of growth that they see in the overall space. So this could be very bullish for the semiconductor equipment players.
Now, if there's one thing bulls should know, just overall TSMC is, there is still massive demand and severe capacity constraints for TSMC, which allows them to create immense and sustain pricing power. One bearish thing though is a perfect storm of headwinds are converging in 2026, which can create significant gross margins. We're seeing the dilution from transforming from uh 3 nanometers to 2 nanometers. You also see the overseas fabs. You also see the unpredictable foreign exchange risk, and all that could create a bit of a storm for margins next year. But I think all that would be more short-term opposed to long-term.
Now, if there's something investors might have missed from the overall earnings, there's two things. First, I'm going to talk about this. TSMC is securing a second large piece of land in Arizona. This suggests management's internal AI demand forecast may exceed even their public, their bullish public guidance, creating a massive long-term opportunity. Then they have a strategic OSAP partnership in Arizona. To me, if you are a TSMC investor, definitely great. I think this, there's nothing here that would give me a reason to sell if I own the stock. I don't. But as an overall semiconductor investor, I think earnings were pretty pretty amazing, and it gives me that confidence to remain in my semiconductor companies, even though in the short term, we can see a lot of volatility like we have seen in the past week or so.
Now, jumping into some other names, we saw a lot on a lot of miners that are turning into high performance clouding data centers down. We saw Bit Farms down roughly 18%. Some of them are even down more. Hive down roughly 14%. CleanSpark down roughly 13%. Riot down 11%. Mara down 11%. I'm just going to say for me, all right, for me right now, I don't know if this is necessarily buy the dip moment. We can see even here at Bit Farms, which is down nearly 20 plus% if you count the after hours drop, probably closer to 27, 28%. This dip isn't really a dip.
So, if I was one to go and buy these names right now, would still be very small dollar cost averaging. It wouldn't be massively load the boats on this dip because they're still pretty pretty extended. Now, that's just my style. Obviously, I could be completely wrong, but I try to look at everything on a risk-to-reward um metric. And to me, I think the risk is still really high for me to go very heavy on these names.
One of the things that is driving Bit Farms down is they did announce about a $300 million convertible senior notes today. Uh and the main reason is they saw an opportunistic capital raise for general corporate purpose that it pretty much saying our stock has gone up dramatically in the past few months and almost 100% in the past month alone. Let's load up on cash so we can help our business grow. It makes sense for them. I can also see the bearish sentiment from investors as well. Again, for me, not going to be buy a dip moment.
We can even see right now, this is actually pretty interesting. The fear and greed index in the stock market right now is extreme fear. Usually, usually when it's extreme fear, I really don't feel much. I'm still not, I don't have fear in my portfolio right now, but usually in extreme fear moments, I tend to want to buy a lot. And I just don't feel that right now, right? I I I don't feel like the need that new money I need to throw in a lot of new money into my portfolio just yet. I don't know if it's just me. Let me know in the comments below if maybe you're feeling the same way. But this is not a buy the dip moment for me just yet. I'll probably hold on to some cash and onto new money for some time.
If I am buying any stocks, it's going to be more on mature players. Companies like Max 7. I talked about some other companies I'm willing to buy in previous episodes. I did one this past weekend. So those are the ones on my name right now.
Now, I do want to take a closer look at two companies, Nebas and Cororeef. Now, these are in my opinion, a lot less speculative in this AI infrastructure space. They both did announce pretty cool things. Nebas today announced their AI Cloud 3.0 Ether. um the latest release of Nebia's AI Cloud to help improve kind of features in their AI Cloud infrastructure. And Core did very similar. They provided something with storage services.
Now, I'm going to say I don't think any of these are super crazy advancements. I think for Core Reef, I do think the storage is a little bit better. Storage is kind of very crucial for the AI space right now. But regardless, I don't think any of these are like, this is the moment to buy stock. This is more of just the long-term bullish thesis for both these companies to say these companies are still innovating. They're still way better at AI infrastructures than any of these Bitcoin miners turn hypers turn cloud players. And to me, this is why these two remain some of my top plays in the especially in the neo cloud space.
So again, not buying the dip. Would love to hear what you're doing. Maybe maybe depending on the upcoming days, how I start to look at my portfolio, that might change. But right now, it's definitely definitely not it for me.
So, take care. Have a good day.