- Stocks ended a volatile week slightly lower, with the Dow, S&P 500, and Nasdaq pressured by rate worries and tech valuation concerns even as chip shares outperformed.
- TSMC beat on Q4 revenue (US$33.73B, +25.5% YoY) and profit (about US$16B, +35% YoY), with advanced nodes (≤7nm) at about 77% of wafer revenue.
- TSMC also guided 2026 capex of US$52–56B, underscoring surging AI-driven demand across semiconductors.
- Sticky inflation (headline ~2.7%, core ~2.6%) has cooled rate-cut expectations, keeping the Fed outlook a key risk for markets and high-growth tech.
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Over the past week, U.S. equity markets experienced increased volatility with modest losses overall. The S&P 500 and Dow showed weakness into week’s end, largely due to renewed concerns over rising interest rates and stretched valuations in the technology sector. The Nasdaq, being more tech‐ and growth‐weighted, underperformed amid profit‐taking and valuation scrutiny on major AI‐linked names.
Central to the week’s narrative was Taiwan Semiconductor Manufacturing Company (TSMC). Its fourth‐quarter 2025 financials beat consensus estimates: revenue of US$33.73 B, net income near US$16.01 B. Year‐over‐year growth was approximately +25–35%, depending on metric. “Advanced chips” (≤7 nm) accounted for roughly 77% of wafer revenue, up from 74% in full‐year 2025. The company is guiding substantial capital expenditures in 2026 of US$52–56 B, an increase of roughly 35% from 2025 levels. This strong AI demand is broadly lifting sentiment across the semiconductor supply chain.
On macroeconomic fronts, inflation remains stubborn: headline CPI around 2.7%, core inflation ~2.6%—above the Fed’s 2% target. JPMorgan recently revised its view to expect no Fed rate cuts in 2026, contrasting with earlier odds of one or two cuts. Tensions around presidential influence over monetary policy (e.g., statements about potential Fed Chair appointments) add directional uncertainty.
Strategic implications for investors and corporate decision‐makers include:
- Chipmakers like TSMC are increasingly critical in the global AI buildout. Their capacity, techno‐leadership (advanced node share) and cost structure will determine long‐run profitability and bargaining power.
- Valuation discipline is riskier in tech / AI: when optimism meets rounded forward earnings/backlog expectations, downside in high‐beta names can be sharp.
- Interest rate / inflation policy becomes a dominant non-tech risk; exporters and hardware businesses sensitive to input costs—materials, energy—face margin pressure.
- Geopolitical risk (export controls, U.S.-China tensions, trade infrastructure policy) could disrupt supply chains and sourcing, especially for advanced fabs.
Open questions that market participants are watching:
- Whether the AI infrastructure demand has enough visibility and backlog to justify current capex outlays, or whether leading edge fabs will experience underutilization / overcapacity.
- The resilience of chip margin expansion: how much pricing power remains, given customer leverage and competition (e.g., Intel, Samsung, domestic players).
- How much influence political leadership changes will exert over Fed policy and regulatory frameworks of semis/export control.
Supporting Notes
- TSMC’s Q4 revenue was US$33.73 B, up about +25.5% YoY; net income ≈ US$16.01 B, up ~35% YoY. Advanced nodes (≤7 nm) contributed ≈77% of wafer revenue.
- TSMC guidance for 2026 CapEx is US$52–56 B, up from ~US$40.9 B in 2025—a ~35% increase.
- Inflation in the U.S. remains above target: December headline CPI ~2.7%; core inflation ~2.6%.
- JPMorgan: they now expect zero rate cuts in 2026, moving from earlier forecasts of one or two.
- Markets reacted favorably to TSMC’s stronger‐than‐expected results, especially among chip and AI supply‐chain stocks.
- Valuation concerns in tech/AI are increasingly discussed: cautious commentary about “bubble risks.”