2025-10-30 07:14:21
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The stock has nearly doubled from its April lows, despite all the talk about OpenAI coming for Google’s jugular.
So what’s happening?
Antitrust relief: The regulatory fog has partly lifted. A Chrome divestiture is off the table for now, removing one of the worst-case scenarios.
TPU megadeal: Anthropic just locked in access to up to 1 million Google Cloud TPUs, bringing over 1 GW of AI compute online in 2026. The agreement is “worth tens of billions,” implying meaningful revenue growth acceleration for GCP.
What are TPUs, anyway?
Tensor Processing Units are Google’s custom AI chips, offering faster and more efficient performance than traditional GPUs for training and running large models. Introduced in 2016 to power Search and Translate, TPUs have been available through GCP since 2018 for researchers and select enterprises. What’s new today is scale. Anthropic’s multi-year deal marks the first hyperscale deployment of TPUs by an external AI lab—turning them from a niche option into a credible alternative to NVIDIA’s GPUs.
It’s a marquee win for TPUs. If more deals follow, it could become a meaningful revenue engine, even for a $3+ trillion company like Alphabet.
Here’s what stood out this quarter.
Today at a glance:
Alphabet Q3 FY25.
TPUs & going nuclear.
Key quotes from the call.
Chrome, Atlas, and antirust update.
Revenue grew +16% Y/Y to $102.3 billion ($2.2 billion beat).
🔎 Advertising: $74.2 billion (+13%).
Search: $56.6 billion (+15%).
YouTube ads: $10.3 billion (+15%).
Network: $7.4 billion (-3%).
📱 Subscriptions, platforms, and devices: $12.9 billion (+21%).
☁️ Cloud: $15.2 billion (+34%).
Margin trends:
Gross margin: 60% (+1pp Y/Y).
Operating margin: 31% (-2pp Y/Y).
Services (Advertising & Other): 39% (-2pp Y/Y).
Cloud: 24% (+7pp Y/Y).
Earnings per share (EPS) grew 35% Y/Y to $2.87 ($0.61 beat).
Operating cash flow was $48.4 billion (+58% Y/Y).
Free cash flow was $24.5 billion (+39% Y/Y).
Cash, cash equivalents, and marketable securities: $98.5 billion.
Long-term debt: $21.6 billion.
New milestone: Alphabet’s revenue topped $100 billion for the first time, rising 16% Y/Y (+15% Y/Y in constant currency, up from +13% Y/Y in Q2), and net income surged +33% Y/Y to $35 billion.
Search rose +15% Y/Y, driven by retail and financial services. AI Overviews and ‘AI Mode’ are boosting engagement, turning last year’s cannibalization fears into a tailwind as commercial intent rebounds.
YouTube Ads jumped +15% Y/Y, driven by both brand budgets and direct-response. Shorts now see 200 billion daily views, while YouTube Premium helped lift total paid subs beyond 300 million.
Subscriptions, platforms & devices climbed to +21% Y/Y, reaching a $50 billion annual run rate for the first time, led by One and Pixel hardware.
Cloud posted a +34% Y/Y growth, up from +32% Y/Y in Q2, pushing trailing-12-month (TTM) revenue above $50 billion and a record $155 billion backlog (more on this in a minute). Operating income in the unit jumped 85% to $3.6 billion, signaling strong leverage.
Margins & Capex: Company-wide operating margin held firm at 31%, despite record AI and infrastructure spending. Alphabet raised its 2025 CapEx outlook to $91–93 billion (up from ~$85 billion), after spending $24 billion in Q3. Most of that is going into data centers, TPUs, and AI infrastructure — the physical backbone of Gemini and Cloud.
💡 Key takeaway: Alphabet is executing on both sides of the AI equation: monetization through ads and subscriptions, infrastructure expansion through Cloud and compute. With revenue growth reaccelerating, margins holding strong, and capex ramping, the company is firmly back on offense.
Anthropic’s partnership now spans training, inference, and dedicated capacity, marking the first hyperscale deployment of Google’s in-house AI chips by an external lab.
Like most AI deal announcements, it comes down to the equity portion, strategy, and long-term revenue implications.
2025-10-25 22:00:36
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Today at a glance:
🏭 Intel: Cash Infusion
☁️ SAP: Cloud Revenue Caution
🥤 Coca-Cola: Volumes Rebound
🧴 P&G: Tariff Relief Softens Blow
🌐 IBM: AI Bookings Surge
📶 T-Mobile US: Acquisition Boost
📞 AT&T: Subscriber Surge
🧠 Lam Research: China Headwinds
⚙️ Texas Instruments: Recovery Slows
⚡ GE Vernova: Electrification Surge
🦾 Intuitive Surgical: Da Vinci 5 Accelerates
🛰️ Lockheed Martin: Execution Rebounds
🏨 Hilton: Unit Growth Shines
🚗 GM: Guidance Soars
🚙 Ford: Novelis Fire Hits Outlook
🛩️ Southwest: Transformation Delivers
🦅 American Airlines: Profit Outlook Returns
Intel’s Q3 revenue rose 3% Y/Y to $13.7 billion ($560 million beat), and non-GAAP EPS was $0.23, crushing estimates by $0.22 and returning the company to profitability.
Client Computing ($8.5 billion) and Data Center & AI ($4.1 billion) both topped expectations, driven by early signs of a PC refresh cycle and accelerating AI demand. Foundry revenue declined 2% Y/Y to $4.2 billion, but its operating loss narrowed significantly to $2.3 billion from $3.2 billion last quarter.
CEO Lip-Bu Tan highlighted improved execution and strategic progress, particularly in AI, citing partnerships with NVIDIA and SoftBank that boosted confidence and cash reserves. Intel strengthened its balance sheet considerably, ending the quarter with nearly $31 billion in cash, helped by $5.7 billion in US government funding and $5.2 billion from divestitures in Altera (spun off) and Mobileye. Restructuring remains on track, and next-gen Panther Lake CPUs are slated for launch soon.
Still, the outlook tempered enthusiasm. Intel guided Q4 revenue to ~$13.3 billion ($0.1 billion miss, though roughly flat sequentially ex-Altera). Crucially, gross margin is expected to fall back to ~36.5% (from 38%) due to mix shifts and new product ramps. While management raised the CY25 PC market outlook and pointed to strong AI demand, ongoing supply constraints (expected to peak in Q1’26) and the weak margin guidance caused the stock’s initial post-earnings rally to fade, signaling that the turnaround still faces significant hurdles.
SAP’s Q3 revenue rose 7% Y/Y to €9.1 billion (a slight €10 million miss), while non-IFRS EPS came in strong at €1.59 (€0.09 beat). Non-IFRS operating profit increased 15% Y/Y, reflecting continued margin discipline.
Cloud revenue slightly missed estimates, climbing 22% to €5.3 billion (or 27% in constant currency (cc)). ERP Cloud growth moderated slightly to 31% cc (from 34% in Q2). The current cloud backlog remained healthy, up 27% cc to €18.8 billion.
CEO Christian Klein highlighted strong adoption across the Business Suite, including Business Data Cloud and AI, stating SAP is gaining market share. The company pointed to a strong Q4 pipeline, bolstered by deals pulled forward from 2026 and notable wins like a $1 billion contract with the US Army. SAP reiterated its application-focused strategy, partnering with infrastructure providers rather than competing directly like Oracle.
However, management signaled persistent macro headwinds. SAP now expects cloud revenue towards the lower end of its €21.6–€21.9 billion range, while guiding non-IFRS operating profit towards the upper end of its €10.3–€10.6 billion range. Free cash flow guidance was slightly raised to €8.0–€8.2 billion. Despite the cloud revenue caution, management expressed confidence in executing against its strong Q4 pipeline and achieving accelerating total revenue growth in 2026.
Coca-Cola’s Q3 revenue grew 5% Y/Y to $12.5 billion ($90 million beat), while adjusted EPS was $0.82 ($0.04 beat). Global unit case volume returned to growth, rising 1% after dipping last quarter, while price/mix remained strong at +6%.
2025-10-24 20:02:50
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Tesla’s Q3 headline looks impressive with 497K deliveries, a sharp rebound that shows the EV pioneer can still move units.
But much of that strength likely came from a last-minute rush before the $7,500 US tax credit expired, raising doubts about underlying demand. Outside the US, Tesla’s market share kept slipping.
Tesla remains all about the road ahead—specifically, autonomy.
Projects like the humanoid robot Optimus and Musk’s Robotaxi ambitions still dominate the narrative, even if the timeline to real revenue is as murky as ever.
Let’s break it down.
Today at a glance:
Tesla Q3 FY25.
Latest developments.
Key quotes from the earnings call.
What to watch for autonomy.
Tesla’s business still revolves around three pillars:
🚗 Automotive: Revenue from selling EVs (75% of revenue). Deliveries rose 7% Y/Y to 497K vehicles, while production fell 5% to 410K, suggesting Tesla is tapping into existing inventory amid uneven demand.
🌞 Energy Generation and Storage: Revenue from solar products and energy storage solutions, like Solar Roof and Powerwall (12% of revenue).
🔌 Services and Other: Revenue from vehicle service, Supercharger network, and sales of auto parts and accessories (12% of revenue).
Revenue +12% Y/Y to $28.1 billion ($1.4 billion beat).
Gross margin 18% (-2pp Y/Y).
Operating margin 6% (-5pp Y/Y).
Non-GAAP EPS $0.50 ($0.06 miss).
Segment performance tells the real story. The non-auto segments were up 33%, driving most of the growth. They represented 28% of Tesla’s gross profit.
Auto: 15% (excluding credits), stable after dropping to 12.5% in Q1.
Energy: 31%, the highest margin segment improving again.
Services and Other: 11%, the 14th consecutive profitable quarter.
Tesla’s historically strong margins have been supported by gigafactory scale, direct-to-consumer sales, and minimal marketing costs. But those advantages are being eroded by price cuts and rising competition. In the past three years, the auto gross margin has worsened and is merely in line with BYD today.
Operating cash flow: $6.2 billion, flat Y/Y (trailing revenue growth).
Free cash flow: $4.0 billion, surging +46% Y/Y, due to lower Capex, declining 36% Y/Y (and 6% Q/Q) to $2.2 billion. Tesla expects spending to drop to just $9 billion in FY25 — a two-year low.
FY25 outlook: Tesla again withheld full-year guidance, citing trade and fiscal policies. They previously admitted to potential political backlash from Musk’s public stances. Despite the Q3 rebound, a return to growth (predicted earlier this year) remains unlikely, especially if Q3 demand was front-loaded in the US. Remember: Musk predicted 20–30% growth for FY25 late last year. So far, revenue declined 3% Y/Y in the first nine months.
💸 Bottom-line erosion: Operating income rebounded from Q2 but was still 40% down Y/Y as operating expenses surged 50% to $3.4 billion, including the impact from stock-based compensation and restructuring charges.
📉 Regulatory credits fading fast: Revenue from Zero-Emission Vehicle sales dropped ~44% Y/Y and is expected to decline further, removing a cushion Tesla has long leaned on.
🔋 Energy & storage scaling but still lumpy: Deployments hit new highs (>12.5 GWh in Q3), but the high-margin boost remains inconsistent and timing-sensitive. Musk teased Megapack 4, which could output at 35 kV and serve directly as substation infrastructure, a timely feature as the global grid becomes the new bottleneck for AI expansion.
📉 Operating margin dropped 5pp Y/Y, reflecting:
🔻 Negative impact: Higher operating expenses, tariff impact ($400 million), AI and other R&D investments, and lower regulatory credits.
🔺 Positive impact: Non-auto segments, delivery rebound.
💰 Balance sheet remains strong: Tesla ended Q3 with ~$36 billion in net cash, giving it ample firepower to fund autonomy and energy projects.
🚗 Ambitious production goal: Musk aspirationally targets an annualized production rate of 3 million vehicles within two years, even as margins compress and EV demand softens. Cybercab would be the main driver.
🧭 Valuation hinges on what’s next: With the core auto business facing tight margins and demand uncertainty for the foreseeable future, Tesla’s valuation depends more than ever on the big bets (Autonomy + Energy) delivering. The timeline keeps shifting—and competitors are not standing still.
Here’s a quick rundown of the recent announcements:
🤖 Autonomy build-out remains the narrative: Three months ago, Musk promised “half of the US population” would have robotaxi access in 2025. In the Q3 call, he downgraded to “8–10 cities” by year-end. Optimus V3 could come in early 2026.
🇨🇳 China ramp-up begins amid market pressure: Tesla’s Shanghai Gigafactory is poised to increase output in Q4, and China sales showed a modest uptick (up ~3% Y/Y in September) after months of decline. The broader market, however, remains fiercely competitive from local brands and is weighing on Tesla’s margin and share.
🥊 BYD showdown: BYD’s battery EV deliveries surged 32% Y/Y to 583K, widening its lead over Tesla for the fourth consecutive quarter. While it’s not a perfect comparison (BYD deliveries are not direct-to-consumer), the trend clearly tells a story.
Tesla sold ~5,400 Cybertrucks in Q3, according to Cox Automotive, a 63% drop Y/Y in a quarter when the expiration of the EV tax credit should have given demand a lift.
In 2023, Musk suggested Tesla could eventually produce 250,000 Cybertrucks a year. The demand reality is proving far more modest so far. Even Ford’s F-150 Lightning (also a full EV) sold over 10,000 units last quarter, and Chevrolet’s Silverado EV nearly doubled sales to just over 3,900 units.
Musk’s ambitious targets are often more aspirational than predictive, and investors should focus on execution and demand signals rather than headline promises.
🌍 Market share: After years of expansion, Tesla is steadily declining across all regions. The visual in Tesla’s deck shows a worrisome trailing 12-month view. The US/Canada rebound is likely a “mirage” from the EV tax credit deadline pulling demand forward.
🤖 FSD: Tesla’s fleet has now logged 6 billion miles using FSD (Supervised), strengthening the data-advantage thesis. That said, true unsupervised deployment remains elusive, and generating revenue from it is still a way off. So, the promise stays intact, but the clock keeps ticking.
Check out the earnings call transcript on Fiscal.ai here.
“Within a few months, we expect to have no safety drivers at all at least in parts of Austin […] We do expect to be operating Robotaxi in about 8 to 10 metro areas by the end of the year. It depends on various regulatory approvals.”
Big promise, familiar caveats. State-by-state rules and local permits will govern pace. Even Tesla says it will start new markets with a safety driver for several months. Treat timelines as aspirational. We could be years away from a paid, driverless service at scale.
“The first priority when we release a major new Autopilot architecture is safety. […] By 14.2, we will have addressed many of the comfort issues. […] This car is going to feel like it is a living creature.”
Version 14 is Tesla’s biggest step toward end-to-end autonomy that handles perception, planning, and control in one stack. Early testers describe a smoother experience, but not fully hands-free autonomy. Musk’s “living creature” comment hints at the new reasoning layer, with cars learning to drop you off, park, and adapt in real time. It’s a major architectural leap, though still miles from true robotaxi independence.
Musk’s tone has clearly shifted, from defensive earlier this year to outright conviction that unsupervised autonomy is “100% solvable.” That confidence, more than the data, fueled optimism on the call.
“We continue to operate our fleet in Austin without anyone in the driver’s seat […] In the Bay Area, where we still have a person in the driver seat because of the regulations […] we cross more than a million miles. […] Customers have used Full Self-Driving supervised for a total of 6 billion miles as of yesterday.”
The data advantage is real and compounding. But the cars are still supervised remotely (like Waymo in its early days). Until “unsupervised” is approved and insured broadly, FSD remains a powerful feature—not a standalone revenue engine.
“The total paid FSD customer base is still small, around 12% of our current fleet […] Robotaxi costs are included within Services and Other.“
Monetization remains early (only ~1 in 8 owners paying for FSD). This accounting note matters: Robotaxi burn isn’t in the auto gross margin. It sits in Services—important when comparing segment profitability.
“We’re going to focus both TSMC and Samsung initially on AI5 […] By some metrics, the AI5 chip will be 40× better than AI4 […] I think AI5 will be the best performance per watt, maybe by a factor of 2 or 3 and the best performance per dollar for AI, maybe by a factor of 10.”
These are massive claims. Dual-sourcing de-risks supply, but execution risk is high: new design, new nodes, and a CapEx ramp for 2026 and beyond. The proof won’t come from specs, but from shipped silicon and real-world performance.
“We look forward to unveiling Optimus V3 probably in Q1 […] we’re going to be building a 1 million unit Optimus production line hopefully, with the production start towards the end of next year. […] Ultimately, we’ll do Optimus 4, that will be 10 million units. Optimus 5, maybe 50 million to 100 million units.”
Ambition dial at 11. Treat volumes as a goal post (see Cybertruck reality above). Near-term value driver remains software and vehicles, with Optimus as optionality.
Driver-out, not driverless: Tesla now operates a small robotaxi fleet in Austin with no one in the driver’s seat, a symbolic step forward. Still, vehicles remain geofenced and remotely supervised, far from true Level 5 autonomy. Regulatory clearance continues to gate expansion to the Bay Area and other markets.
FSD v14 rollout: Version 14 introduced Tesla’s largest neural-network rewrite yet — improving safety, comfort, and “reasoning” (like dropping riders off, finding parking, or adapting routes). Still supervised, with early testers noting erratic corner cases. The path to a paid, nationwide ride-hailing network remains uncertain.
Competitive pressure mounts: Waymo remains ahead on regulatory and safety validation, operating fully driverless rides in multiple US cities. Meanwhile, Tesla faces ongoing NHTSA scrutiny after reports of traffic violations during early robotaxi testing.
Why it matters: Autonomy remains Tesla’s trillion-dollar story, but execution risk looms large. For context, Uber, with 170 million monthly users and nearly half of global ride-hailing, is worth $200 billion — proof that scale alone doesn’t guarantee multi-trillion-dollar upside (as predicted by Musk), however bold the vision.
Next-gen prototype coming: Musk said Optimus V3 could be shown in Q1 2026, with a production-intent line targeting 1 million units per year. He called it “the biggest product of all time.”
AI crossover: Tesla now trains Optimus with the same vision-only real-world AI used in FSD, replacing motion-capture inputs. It’s an elegant engineering bridge, but still a long way from commercial utility.
Execution challenges: Hand dexterity, supply-chain depth, and manufacturing complexity continue to be limiting factors. Musk admitted that the hand and forearm are harder to engineer than the rest of the robot.
Why it matters: Optimus could redefine Tesla’s scope beyond vehicles, from mobility to labor itself. But as with robotaxi, the gap between demo and delivery remains wide.
Musk insists Tesla is no longer just a carmaker but an AI and robotics company.
Yet Tesla doesn’t operate in a vacuum. Virtually all of Big Tech is chasing the same frontier — from autonomous mobility (Waymo, Zoox, Uber) to embodied AI (Amazon’s Vulcan, Figure AI, 1X, Agility Robotics). The vision is bold, but the timeline is uncertain, and execution risk remains high. Reframing the mission doesn’t change the fact that Tesla is not playing a single-player game.
That’s it for today!
Stay healthy and invest on.
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Author's Note (Bertrand here 👋🏼): The views and opinions expressed in this newsletter are solely my own and should not be considered financial advice or any other organization's views.
Disclosure: I am long TSLA, GOOG, NVDA, and UBER in the App Economy Portfolio. I share my ratings (BUY, SELL, or HOLD) with App Economy Portfolio members.
2025-10-22 06:49:13
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Move over Squid Game. K-Pop Demon Hunters is the captain now.
The animated film stormed past 325 million views in just four months, becoming the most-watched Netflix title ever. It spent 15 straight weeks in the global Top 10, and even hit No. 1 at the US box office (a first for a Netflix original).
That surge helped define a record Q3, fueled by a chart-topping soundtrack and rabid fandom. It was a rare streaming phenomenon, the kind that drives replays, sign-ups, and cultural relevance. Sequels, prequels, and spin-offs are already on the table.
But Netflix’s ambitions go well beyond scripted content. The company is testing low-cost, engagement-heavy formats, from video podcasts arriving in 2026 to social games you can play on your TV.
Let’s break it down.
Today at a glance:
Netflix Q3 FY25.
Spotify podcasts are coming.
Quotes from the earnings call.
The YouTube problem.
Revenue +17% Y/Y to $11.5 billion (in-line).
Operating margin 28% (-1pp Y/Y).
EPS $5.87 ($1.10 miss).
Operating cash flow: $9.6 billion (22% margin).
Free cash flow: $9.0 billion (21% margin).
Cash and short-term investments: $9.3 billion.
Debt: $14.5 billion.
Revenue +17% fx neutral to $45.1 billion ($0.1 billion raise).
Operating margin 29% (0.5pp cut).
📈 Margin miss due to a big one-off: A ~$619 million Brazil tax expense cut operating margin by 5 points to 28%, missing the 31.5% guidance as a result. Management doesn’t expect it to be a lasting drag. The adjustment was booked at cost of revenue, and therefore impacted gross margin too. The long-term margin improvement trend should resume in 2026.
📢 Ads remain the growth engine: It was the best ad quarter yet and still on track to more than double in 2025. Over half of new sign-ups in ad markets choose the ad plan.
🍿 Content still travels: K-Pop Demon Hunters showed Netflix’s knack for capturing the zeitgeist with releases that travel worldwide and drive engagement.
🟣 Live is now material: The live slate keeps ramping (notably boxing), and Q4 will bring the Christmas Day NFL doubleheader, offering premium inventory for ads and churn defense.
🌍 FX headwinds return: Currency swings had a small impact, preventing another revenue beat. A reminder to look beyond the headline.
🧭 Guidance improves: Q4 revenue guided to ~$12.0 billion ($0.1 billion beat) with EPS ~$5.45 (slight beat). Full-year revenue improved $0.1 billion to ~$45.1 billion while FY25 margin trimmed to ~29% due to the one-off Brazil tax impact.
💸 Capital firepower intact: With TTM free cash flow at ~$9 billion and the cash hoard at ~$9.3 billion, Netflix can fund bigger live rights, accelerate ads tooling, and keep buying back stock opportunistically ($7 billion so far this year).
🎮 New bets provide option value: Advertising is scaling, with new formats on the way (video podcasts and party games) expanding the surface area. But these will take time to be needle-movers. Let’s review the details.
2025-10-18 22:02:25
Welcome to the Saturday PRO edition of How They Make Money.
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📊 Monthly reports: 200+ companies visualized.
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Today at a glance:
💊 J&J: Strategic Split
🔬 ASML: AI Orders Shine
💳 Amex: Platinum Refresh Pays Off
📈 Blackrock: $13.5 Trillion in AUM
🏦 Charles Schwab: Retail Surge
🛩️ United Airlines: Premium Focus
🍕 Domino’s: Stuffed Crust Momentum
J&J’s Q3 revenue rose 7% Y/Y to $24.0 billion ($240 million beat), and adjusted EPS was $2.80 ($0.04 beat).
Innovative Medicine rose 7% to $15.6 billion, driven by strong performance in Oncology, with Darzalex up 20% and Carvykti surging 81%. Meanwhile, Immunology declined 10% despite Tremfya jumping 40%, only partially offsetting the continued 42% decline of Stelara due to biosimilar competition.
MedTech sales grew nearly 7% to $8.4 billion, led by double-digit growth in Cardiovascular, helped by the performance of recent acquisitions like Abiomed and Shockwave.
The quarter’s biggest news was a major strategic pivot: J&J announced plans to spin off its slower-growing $9.2 billion orthopedics business (DePuy Synthes) within 18-24 months to sharpen its focus on higher-growth markets.
Following the Q3 results, J&J raised its full-year reported sales guidance to ~$93.7 billion ($0.3 billion raise) while reaffirming its EPS outlook. Management emphasized momentum in its innovative pipeline, projecting several new $5 billion peak-year assets. While Stelara erosion and political pressure on drug pricing remain headwinds, the company is aggressively reshaping its portfolio to accelerate growth.
ASML reported Q3 revenue of €7.5 billion (€210 million miss), but beat on profit with EPS of €5.48 (€0.06 beat). Bookings remained robust at €5.4 billion, easily surpassing estimates (€0.5 billion beat), driven by a massive €3.6 billion in new orders for its most advanced EUV machines as the AI boom continues. Gross margin improved to 52%, beating consensus and landing at the high end of guidance.
Management reaffirmed its full-year 2025 guidance for 15% revenue growth and 52% gross margin. For 2026, ASML sought to calm investor nerves by stating that sales would “not be below 2025,” establishing a floor after last quarter’s uncertainty. However, CEO Christophe Fouquet explicitly warned that sales to China are expected to decline significantly next year (from 30% of revenue in 2025 down to roughly 25% in 2026), offsetting some of the AI-driven strength.
AI-related demand was the clear driver, fueling the strong EUV bookings as more customers invest in advanced logic and DRAM. However, the China risk has intensified. The region jumped to become the largest market at 42% of system sales this quarter, up from 27% last quarter. The outlook remains a tale of two opposing forces: a booming AI cycle versus a sharp, policy-driven downturn in what is now its largest market.
American Express reported Q3 revenue growth of 11% Y/Y to $18.4 billion ($380 million beat) and EPS of $4.14 ($0.16 beat), fueled by accelerating cardmember spending and an 18% jump in card fees.
The recently revamped Platinum Card was a standout, with new US Platinum account acquisitions doubling pre-refresh levels. CEO Steve Squeri called it the “strongest start we’ve ever seen with a refresh.”
2025-10-17 20:03:10
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“Conviction in the AI megatrend is strengthening.”
That’s how Taiwan Semiconductor Manufacturing Company (TSMC) CEO C.C. Wei summed up the moment in his Q3 remarks, calling AI chip demand ”insane.”
The company now expects AI-related revenue to double in 2025 and grow about 45% annually for the next five years. 👀
And this isn’t coming from a niche player.
TSMC is the 9th most valuable company on the planet, and the foundry behind NVIDIA’s AI accelerators and Apple’s iPhone chips. It’s the beating heart of the global semiconductor supply chain, the critical bridge between chip design dreams and production reality.
If the AI era is an arms race, TSMC is the arsenal builder everyone depends on.
Disclosure: I own TSM in in App Economy Portfolio. It was the January 2023 Stock Idea, and the stock has quadrupled since then.
This quarter showed what that looks like in numbers, with record revenue, soaring profits, and raised growth expectations, all fueled by a wave of demand that shows no sign of slowing down.
Today at a glance:
TSMC keeps outperforming
Bottleneck and geopolitics
Key quotes from the earnings call
What to watch moving forward
Income statement:
Revenue surged +41% Y/Y to $33.1 billion ($1.5 billion beat).
Gross margin was 59% (+2pp Y/Y).
Operating margin was 51% (+3pp Y/Y).
EPADR (American Depositary Receipt) was $2.92 ($0.32 beat).
Revenue by platform:
💻 High-Performance Computing (57% of overall revenue, +6pp Y/Y).
📱 Smartphone (30% of overall revenue, -4pp Y/Y).
💡 IoT (5% of overall revenue, flat Y/Y).
🚘 Automotive (5% of overall revenue, flat Y/Y).
🎮 Digital Consumer Electronics (1% of overall revenue, flat Y/Y).
Others (2% of overall revenue, flat Y/Y).
Revenue by technology:
3nm (23% of overall revenue, +3pp Y/Y).
5nm (37% of overall revenue, +5pp Y/Y).
7nm (14% of overall revenue, -3pp Y/Y).
16nm and above (26% of overall revenue, -5pp Y/Y).
Cash flow:
Operating cash flow margin was 43% (-9pp Y/Y), a decline linked to working capital changes as demand surged and production scaled.
Free cash flow margin was 14% (-10pp Y/Y).
Balance sheet:
Cash, cash equivalents, and short-term investments: $90.1 billion.
Long-term debt: $28.8 billion.
Q4 FY25 Guidance:
Revenue ~$33.3 billion ($2.0B beat).
Gross margin ~60%
Operating margin ~50%
💥 Record quarter on AI demand: Revenue surged 41% Y/Y to $33.1 billion (or 30% in local currency to NT$990 billion), beating estimates and setting a new high. Net income reached $15.1 billion, as AI-fueled orders from NVIDIA, AMD, Apple, and others drove massive growth.
🔮 Guidance raised again: TSMC now expects mid-30% revenue growth in 2025 (local currency), up from ~30% previously. It’s the second upgrade in three months, signaling deep confidence in AI’s momentum.
⚙️ HPC still leads the charge: High-performance computing (AI + 5G) accounted for 57% of revenue. Advanced nodes (7nm and below) made up 74% of wafer revenue, with strong traction in 3nm and high utilization at 5nm.
🏗️ Capex ramps up again: Minimum 2025 capital spending was raised to $40 billion (from $38 billion), focused on capacity expansion for leading-edge nodes and advanced packaging.
🇺🇸 US expansion accelerates: TSMC is securing land for a second Arizona “gigafab” cluster to meet soaring US demand and mitigate tariff risks. Total US investment commitment is $165 billion.
🗓️ Q4 outlook: Management expects $33.3 billion in revenue ($2.0 billion beat), with gross margins around 60%, supported by continued strong demand for leading-edge process tech.
🫧 Bubble talk dismissed: Despite comparisons to the dot-com era, TSMC says AI demand is real and fundamental, citing exponential growth in tokens processed by major AI players.
📈 Market reaction: TSM shares are up 53% YTD, adding over $260 billion in market cap since the last guidance hike.
The AI boom has turned TSMC’s strengths into pressure points.
The insatiable demand for AI accelerators goes beyond wafers. It’s about what happens after they’re made. Advanced packaging technologies like CoWoS (chip-on-wafer-on-substrate) are essential for connecting high-performance chips, and right now, they’re the limiting factor.
TSMC is racing to expand that capacity. It’s doubling CoWoS output into 2026, building two new advanced packaging fabs in Arizona, and partnering with a major OSAT player already breaking ground nearby. Backend throughput will determine how fast AI systems can scale.
While demand is booming globally, political friction threatens to reshape the map. New US tariff proposals include potential 20%+ duties on Taiwan semiconductor exports and even a 100% levy unless chips are manufactured domestically. Meanwhile, China’s access to leading-edge chips remains uncertain amid escalating export restrictions. Rare-earth export restrictions and US sanctions are adding further uncertainty.
Beyond trade, Taiwan’s central role in chipmaking could become a bargaining chip itself. Roughly 90% of the world’s most advanced semiconductors are produced on the island, which means Taiwan’s tech dominance could be used as leverage in future negotiations between Washington and Beijing. That risk is part of why TSMC is racing to diversify production to the US, Japan, and Europe. These moves are designed as much to de-risk geopolitics as to meet soaring demand.
Geopolitical maneuvering will shape where future fabs are built, and how quickly capacity scales. That’s why TSMC is securing land for a second “gigafab” cluster in Arizona, a strategic hedge against policy shocks and trade volatility.
Check out the post-call Q&A on Fiscal.ai here.
“AI demand actually continue to be very strong [...] stronger than we thought 3 months ago. [...] The number are insane.“
TSMC says AI demand is running even hotter than expected and now sees growth slightly above its already-bold 45% CAGR forecast, driven by token growth and new AI workloads. This is not a typical cycle.
“The number of tokens increase is exponential. [...] Almost every 3 months, it will exponentially increase. [...] That’s why we are still very comfortable that the demand on leading edge semiconductor is real.“
This surge in compute demand underpins why TSMC expects AI-related revenue to grow so fast. The exponential jump in tokens per model ensures that even if the number of customers stabilizes, their compute needs will not.
“Right now, we pay a lot of attention to our customers’ customer [...] we talk with them and see how they view the AI application [...] and then we make a judgment about how AI is going to grow.“
TSMC isn’t just relying on direct customer forecasts anymore. It’s building visibility further down the stack. That reduces forecasting risk and helps ensure new fabs and packaging lines align with long-term demand.
“Everything related like front-end and back-end capacity is very tight. We are working very hard to make sure that the gap will be narrow.“
Advanced packaging (CoWoS) is still supply-constrained into 2026, underscoring how backend capacity has become as critical as front-end nodes in the AI era.
“A higher level of capital expenditures is always going to be correlated with higher growth opportunities in the following years. [...] As long as we believe there are business opportunities, we will not hesitate to invest.“
TSMC is linking its ~$40–42 billion CapEx directly to multiyear AI growth. The key signal is that revenue is rising faster than CapEx.
“N2 is well on track for volume production later this quarter. [...] N2’s structural profitability is better than the N3.“
The next wave of node migration begins now. With better economics and demand from both smartphones and AI, N2 sets up a stronger gross margin profile in 2026 and beyond, partially offset by the ramp-up of overseas fabs.
TSMC is riding the AI megatrend harder than anyone else. Here’s what to watch as the story unfolds from here.
AI revenue mix: With AI-related revenue expected to grow 45% annually, it will be the most important component of the thesis.
Node migration: Keep an eye on the ramp of N2 volume production (starting late 2025) and N2P/A16 in 2026. These nodes are structurally more profitable and could expand gross margins despite overseas fab dilution.
CapEx trajectory: Any hints of further increases could signal even stronger demand visibility, or pressure on free cash flow if operating cash flow lags.
US footprint: Watch for progress on the Arizona gigafab cluster and advanced packaging fabs. US expansion is a strategic hedge against tariff risk and a requirement for winning future hyperscaler deals.
Geopolitical shocks: Tariffs, export controls, or escalating US–China tensions could reshape demand patterns, especially if China access remains constrained.
Overseas cost drag: Overseas fabs still carry 2–3% margin dilution in early years. If costs rise faster than planned, that could weigh on profitability.
Packaging bottlenecks: Persistent constraints in back-end capacity could limit near-term upside, even if demand remains strong.
Forecasting challenges: Management admits the AI forecast remains hard to pin down. Rapid shifts in end-customer demand could lead to mismatches between capacity and utilization.
Ultimately, two clear narratives have emerged:
📈 Bull case: TSMC is the indispensable enabler of the AI era. Explosive compute demand, new node ramps, and deep customer visibility give it a multi-year growth runway few companies can match.
📉 Bear case: Geopolitics, overseas cost drag, and packaging bottlenecks could slow progress. And with expectations already sky-high, even small stumbles could hit the stock hard.
The story is clear: TSMC sits at the center of the AI build-out. The megatrend is real and accelerating, but investors must stay mindful of execution risks and policy shocks. Even the most unstoppable trends rarely move in straight lines.
That's it for today.
Happy investing!
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Disclosure: I own AAPL, AMD, ASML, and NVDA in App Economy Portfolio. I share my ratings (BUY, SELL, or HOLD) with App Economy Portfolio members.
Author's Note (Bertrand here 👋🏼): The views and opinions expressed in this newsletter are solely my own and should not be considered financial advice or any other organization's views.
