TSMC Stock Faces Major $390 Test as Massive 2026 Capex and China’s Chip Ambitions Raises Risk
TSMC stock has retreated sharply from its record high as investors grow increasingly uneasy about rising capital spending, Chinese semiconductor competition, and whether enormous AI infrastructure demand can justify the industry's increasingly aggressive investment cycle.
TSMC stock has retreated sharply from its record high as investors grow increasingly uneasy about rising capital spending, Chinese semiconductor competition, and whether enormous AI infrastructure demand can justify the industry’s increasingly aggressive investment cycle.
TSMC Stock Reverses After Reaching Record High
Taiwan Semiconductor Manufacturing Company shares extended a powerful rally into late June, climbing to a record high near $480 as investors continued to price in strong demand for advanced chips used in artificial intelligence and high-performance computing.
However, the momentum has deteriorated sharply in July.
TSMC stock has fallen approximately 17% and recently slipped below the $400 level, raising concerns that the previous rally may have become overstretched. The decline has also pushed the stock toward a critical technical area around $390.
A sustained break below that support could significantly weaken the technical structure and potentially expose the stock to a deeper decline toward the $300 area.
The reversal comes despite TSMC maintaining an optimistic long-term outlook, highlighting the growing gap between strong underlying demand and increasingly demanding investor expectations.
Higher 2026 CapEx Raises Fresh Concerns
One of the biggest sources of uncertainty is TSMC’s decision to raise its 2026 capital expenditure budget to between $60 billion and $64 billion.
The company says the increased spending is necessary to capture long-term growth in high-performance computing and emerging AI applications, including agentic AI.
Approximately 70% to 80% of the budget will be allocated toward advanced process technologies, while around 10% will target specialty technologies. The remaining 10% to 20% will be directed toward advanced packaging, testing, mask-making, and other areas.
TSMC has emphasized that it works closely with equipment suppliers and customers well ahead of time to prepare capacity and does not currently expect major bottlenecks.
However, investors are increasingly questioning the return on such enormous investments.
The semiconductor industry is entering an aggressive capital spending cycle, and companies must eventually demonstrate that rising capacity and infrastructure spending can translate into sustainable earnings and cash flow.
Chinese Semiconductor Competition Creates New Pressure
Another major concern is China’s rapidly expanding domestic semiconductor industry.
Reports indicate that a state-backed Chinese manufacturer has entered production of domestically developed immersion deep ultraviolet lithography systems, with deliveries potentially reaching major Chinese chipmakers before the end of the year.
The development is significant because immersion DUV systems represent some of the most advanced lithography equipment Chinese semiconductor companies can currently obtain amid restrictions on more sophisticated EUV technology.
A domestically developed alternative could reduce China’s reliance on foreign suppliers and accelerate its efforts to build a more self-sufficient semiconductor industry.
For TSMC, the immediate threat may be limited, particularly at the leading edge. However, the long-term implications are more concerning.
If Chinese manufacturers continue narrowing the technology gap while competing at lower costs, pressure could increase across portions of the global semiconductor market.
AI Demand Remains the Biggest Bullish Factor
Despite the growing risks, TSMC continues to benefit from powerful structural demand.
Advanced chips used in AI infrastructure and high-performance computing remain a major source of growth. Chips manufactured using TSMC’s 3-nanometer process now account for roughly a quarter of the company’s revenue, highlighting the rapid adoption of advanced technologies.
Major customers are also exploring next-generation manufacturing processes, potentially providing TSMC with strong visibility into future demand.
The problem is that the market already expects exceptional growth.
As expectations rise, even strong results may fail to support the share price if investors become concerned that spending is growing faster than future returns.
U.S. Expansion Strengthens Supply Chain
TSMC’s long-term strategy also includes a major expansion of its U.S. manufacturing footprint.
The company recently announced a ten-year collaboration with Amkor Technology involving advanced packaging and testing services in Arizona.
The partnership could strengthen supply-chain resilience and expand the ecosystem surrounding TSMC’s U.S. operations.
Advanced packaging is becoming increasingly important as AI chips become more complex, making the collaboration strategically significant.
However, U.S. expansion also requires substantial capital and comes with higher construction and operating costs.
Stock Pullback Despite Strong Results
Despite the strong fundamentals, TSMC shares declined more than 3% following the announcement in April, but that was just a pullback before the uptrend resumed again. The stock reached at $450 in early June, but retreated lower. However the 20 weeekly SMA in gray held as support and we so another bullish move. The TSMC stock printed a new record at $480 but has reversed in July and now sellers are testing the 20 weekly SMA (gray) again which would open the door for $300 if broken.
TMSC Chart Weekly – The 20 SMA Has Been Acting as Support
Nvidia Partnership Supports Manufacturing Efficiency
TSMC is also working closely with Nvidia to incorporate AI technologies into semiconductor manufacturing.
The collaboration includes applications such as computational lithography, wafer inspection, and transistor-level simulation.
If successful, these technologies could improve manufacturing yields and shorten development timelines.
The partnership reinforces TSMC’s position at the heart of the AI semiconductor ecosystem, but it also highlights the company’s exposure to the sustainability of the broader AI investment boom.
If hyperscalers eventually slow capital spending, demand across the semiconductor supply chain could weaken.
$390 Becomes a Critical Technical Level
From a technical perspective, the $390 area is now becoming increasingly important.
The stock’s retreat from $480 has already damaged the previous bullish momentum. If buyers successfully defend $390, TSMC could attempt to stabilize and recover toward $400 and beyond.
However, a decisive break below this support could trigger another wave of technical selling and potentially expose the stock to the $300 region.
That would represent a substantial further decline and could signal that investors are reassessing the aggressive growth assumptions built into TSMC’s valuation.
For now, TSMC remains one of the strongest companies in the global semiconductor industry, supported by AI demand, advanced-node leadership, and long-term customer commitments. Yet the stock’s sharp reversal shows that the market is becoming less forgiving.
With capital spending climbing, Chinese competition intensifying, geopolitical risks remaining elevated, and the $390 support level under pressure, TSMC’s impressive long-term growth story is facing a more difficult near-term test.
TSMC Key Earnings Highlights
Net Income:
- T$572.5 billion (~$18.2 billion) in Q1
- +58% YoY growth
- Marks 8 consecutive quarters of double-digit profit growth
EPS Performance:
- Reported: T$22.08
- Expected: T$20.88
- Clear earnings beat, reinforcing strong operational execution
Guidance and Outlook
Full-Year Revenue:
- Now >30% growth (USD terms)
- Upgrade from prior ~30% guidance
Q2 Revenue Forecast:
- Expected: $ 39B – $40.2B
- vs $30.1B last year
- Implies strong YoY acceleration
Capital Spending and Chip Demand
Capex Guidance:
- Expected toward the top end of $52B–$56B range
- Signals continued heavy investment in advanced chips
Key Driver:
- Strong demand for AI chips and advanced nodes (3nm/2nm)
- Reinforces TSMC’s position at the center of the global AI supply chain
Market Implications
- Results confirm ongoing semiconductor upcycle, particularly in AI-related demand
- Strength likely supportive for broader chip ecosystem and tech sector
- Elevated capex suggests confidence in sustained long-term demand, not just short-term spike
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