This article first appeared on GuruFocus.
Taiwan Semiconductor Manufacturing (NYSE:TSM), the world's largest contract chipmaker, fell approximately 4.1% in Wednesday's U.S. regular-session trading as a severe Asian AI-stock rout spread across semiconductor markets. TSMC's Taipei-listed shares closed 3.5% lower. South Korea's KOSPI fell as much as 12.6% before closing 6% lower, extending a two-day selloff that erased as much as $2.18 trillion from Seoul's equity market.
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Reuters attributed part of the decline to the forced unwinding of leveraged positions after SK Hynix's record profit missed elevated expectations. Regulators said they were considering additional restrictions on single-stock leveraged funds, including individual investment limits and higher trading costs. Selling also affected Taiwan's UMC, a contract chip manufacturer, and Japan's Kioxia, a memory-chip producer, which declined 9.7% and 13.9%, respectively.
The selloff contrasts with TSMC's underlying results. The company recently reported a 77% increase in second-quarter profit to a record T$706.6 billion, or approximately $22 billion, exceeding the T$632.6 billion market forecast. TSMC also raised its 2026 capital-spending target to between $60 billion and $64 billion and projected annual revenue growth above 40%. The current decline suggests that record earnings have not removed concern about crowded positioning and the returns generated by global AI spending. Investors may now focus on whether leveraged selling stabilizes and whether TSMC's customers maintain the demand forecasts supporting its substantially higher investment plan.