TSMC Earnings Spark AI Tech Rally: Semiconductor Demand Surges

Good morning investors,

Taiwan Semiconductor's blockbuster earnings validate what sophisticated investors have suspected all along: the AI transformation isn't speculative excess but genuine technological revolution. The company's 39% profit surge demonstrates accelerating demand for the most advanced semiconductors on the planet, providing empirical evidence that this technological cycle has substantial room to run.

Futures suggest measured optimism this morning with S&P 500 ($SPY ( ▲ 0.16% )) futures advancing 0.4%, Nasdaq ($QQQ ( ▼ 0.1% )) futures climbing 0.6%, and Dow ($DIA ( ▲ 0.12% )) futures gaining 150 points. The premarket strength follows yesterday's choppy session that ultimately resolved higher, with the S&P 500 closing up 0.4% and the Nasdaq gaining 0.7% as investors looked past China trade tensions toward accelerating earnings momentum. The VIX holding at 20.6 reflects elevated uncertainty without panic, creating an environment where selective opportunities emerge for those willing to look beyond headline volatility.

Taiwan Semiconductor Manufacturing Company ($TSM ( ▼ 0.59% )) reported third-quarter results that should silence any remaining AI skeptics. Revenue reached NT$989.92 billion, surpassing estimates while climbing 30.3% year-over-year. Net income soared 39.1% to NT$452.3 billion, with sequential growth of 13.7% from the prior record quarter demonstrating momentum acceleration rather than plateau formation.

The strategic implications extend far beyond quarterly beats. High-performance computing applications now represent 57% of total revenue while advanced chips utilizing 7-nanometer processes or smaller command 74% of wafer revenue. This technological moat continues widening as competitors struggle matching TSMC's manufacturing capabilities at scale. CEO C.C. Wei's declaration that conviction in the AI megatrend is strengthening carries particular weight given the company's position manufacturing chips for Nvidia, Apple, and essentially every major AI initiative globally.

Management raised full-year guidance to mid-30% growth from approximately 30% previously, while increasing capital expenditure floors to $40 billion from $38 billion. This commitment to capacity expansion signals confidence that current demand represents early innings of multi-year transformation rather than peak cycle dynamics. While tariff uncertainties persist, TSMC's heavy U.S. facility investments provide strategic hedging against geopolitical risks.

Wednesday's bank earnings reinforced the dealmaking renaissance narrative. Bank of America posted 23% profit growth with investment banking fees soaring 43% to $2.0 billion. Morgan Stanley delivered 45% profit expansion as investment banking revenues climbed 44% to $2.11 billion. Trading operations proved equally robust with Morgan Stanley reclaiming the equities crown through $4.12 billion in revenue representing 35% growth.

Wells Fargo's transformation deserves particular attention following June's asset cap removal. Management raised return targets to 17-18% from 15% while posting strongest loan growth in three years. CEO Charlie Scharf's ambition to establish Wells among top five investment banks suddenly appears achievable given current momentum. Yet beneath celebration, bank executives struck cautionary notes about labor market softening and persistent inflation pressures.

United Airlines ($UAL ( ▲ 4.33% )) forecast highest quarterly revenue in company history for the current quarter, expecting adjusted profit between $3.00 and $3.50 per share. The carrier generated $15.2 billion in third-quarter revenue while planning another billion-dollar investment enhancing customer experience, reflecting confidence in sustained premium travel demand despite economic uncertainties.

Salesforce's Dreamforce conference produced stronger-than-expected 2030 revenue guidance exceeding $60 billion, surpassing Wall Street's $58.37 billion estimate. The accompanying $7 billion share buyback announcement over six months demonstrates management confidence in cash flow durability. J.B. Hunt Transport Services delivered impressive results with profit rising 12% to $170.9 million despite freight industry challenges.

Escalating trade dynamics took another turn as President Trump threatened cooking oil trade bans following China's reduced soybean purchases. Treasury Secretary Scott Bessent confirmed plans for industry price floors combating perceived Chinese market manipulation. Despite tough rhetoric, markets appear pricing another tariff deadline extension past mid-November, explaining equity resilience amid headline risks.

TSMC executives acknowledged monitoring tariff developments while negotiating reciprocal rate reductions, though management expects technology exemptions given critical supply chain positioning. The disconnect between political posturing and market pricing suggests sophisticated investors recognize mutual dependencies preventing dramatic escalation.

LPL Research highlights emerging concentration risks with five stocks accounting for 60% of the S&P 500's gains since July. This narrowing breadth creates vulnerability to disappointment from mega-cap technology names while undermining traditional market health indicators. Bank of America's fund manager survey naming AI equity bubble as biggest tail risk for first time surpasses both inflation and geopolitical concerns.

My take is markets have leaders, and while you wouldn't ideally have five stocks accounting for 60% of the growth, the AI picture really exaggerates this discrepancy. Nvidia accounts for a large part of the earnings growth in the index, while others have large capex spend to build out the AI revolution. Everything is talked about as a bubble, but bubbles don't pop immediately, and certainly never pop when everyone expects them to.

Navitas Semiconductor surged another 20% yesterday and trades 4% higher in premarket at $15.78, validating our conviction in the power infrastructure transformation thesis. We initially highlighted this opportunity at $6, then reiterated the call last Friday with shares trading between $8.50 and $9. The stock has nearly doubled from that Friday entry point, demonstrating how quickly markets recognize genuine technological inflection points when fundamentals align with narrative.

The move reflects accelerating demand for next-generation power management solutions as AI data centers require dramatically more efficient energy conversion. Navitas's gallium nitride technology represents the future of power semiconductors, and yesterday's surge alongside TSMC's results confirms the entire semiconductor supply chain is experiencing unprecedented demand acceleration.

TSMC's exceptional results provide strongest validation yet that artificial intelligence represents genuine transformation rather than speculative excess. Meanwhile, big bank earnings have been nothing short of spectacular, with investment banking fees surging 40%+ across the board and trading desks printing money from volatility. This combination of technology acceleration and Wall Street resurgence creates powerful dual engines for market appreciation.

Our Navitas call continuing its explosive move higher demonstrates how quickly markets reward those positioned ahead of technological inflection points. Yet despite these strong fundamentals, I continue to expect volatility through October as markets digest rapid gains, navigate government shutdown uncertainties, and approach November's tariff deadlines.

The path forward demands careful navigation between opportunity and risk. While earnings provide fundamental support and AI infrastructure buildout continues generating compelling opportunities, selective positioning remains essential. Tomorrow brings more bank earnings that should reinforce the financial sector strength narrative while markets process TSMC's implications for the broader semiconductor complex. This environment where strong earnings meet heightened uncertainty creates precisely the conditions where active management can significantly outperform passive indexing.

As always, feel free to reach out with questions about positioning for these evolving market dynamics.

Best regards,

Dan Sheehan

[email protected]

This newsletter is for informational purposes only and should not be considered as investment advice. Please consult with your financial advisor about your specific situation.