TSMC (2330.TW): First Take: Stronger 4Q26 guide, flattish GMs, faster capacity growth

TSMC's results and 4Q26 revenue guidance were stronger than expected, helped by a strong N2 ramp and continued N3 demand strength. Gross margin remained within the guidance range in 3Q26 and is indicated to stay flattish in 4Q26 given continued N2 dilution. We believe 2027-28 capex and revenue growth are likely to be revised up on strong demand and the intention to keep expanding capacity to narrow the 2027-28 supply-demand gap. GMs are likely to remain range-bound, as rising depreciation, N2 dilution and overseas fab expansion keep GMs flattish in 2027. 4Q26 revenue is guided up 14% qoq at the midpoint, bringing FY26 growth to 44%, 3-4% above street estimates. We expect FY26 consensus EPS to be raised by 2-3% and FY27/28 EPS estimates to move higher, with FY27 revenue growth approaching 40%. Maintain Overweight with a NT$3,300 price target; the stock could trade down 2-4% near term on AI infrastructure sentiment.