TSMC reports earnings well above Wall Street estimates 📈AI supports semidonducotrs

Shares of Taiwan Semiconductor Manufacturing Company (TSMC.US), the world’s largest contract chipmaker, edged slightly lower in pre-market trading on Wall Street, despite the company reporting second-quarter financial results that exceeded Wall Street expectations. The positive surprise was driven by strong demand for advanced chips, fueled by the rise of AI infrastructure, applications, and data centres. However, forecast for Q3 2025 are slightly softer than expected.

One day before TSMC’s earnings release, another key supplier in the semiconductor sector – Dutch chip equipment giant ASML Holding (ASML.NL) – sparked market anxiety by revising its 2026 growth outlook downward. TSMC’s results helped to soothe investor nerves, signaling that American tech giants like Apple and Nvidia continue to place substantial chip orders with the Taiwanese chipmaker. TSMC maintains a dominant market position, producing roughly 90% of the world’s most advanced chips, including those made with 5nm, 3nm, and 2nm process technologies.

TSMC Q2 Results

Taiwan Semiconductor Manufacturing Company (TSMC) reported a better-than-expected 61% year-on-year increase in net profit for Q2, totaling TWD 398.3 billion. This figure significantly beat LSEG estimates, which forecasted TWD 377.9 billion. Revenue for Q2 came in at TWD 933 billion, slightly above the TWD 928 billion consensus, and nearly 40% higher year-on-year (as previously reported last week).

• Gross margin: 58.6% vs. 58.8% in Q1 and 57.9% expected

• Operating margin: 49.6% vs. 48.5% in Q1 and 47.8% expected

• Operating profit: up 62% YoY to TWD 463.42 billion

In the Q3 2025 the company projects sales at $31.8 billion to $33 billion vs $31.72 billion estimates, slightly lower than expected margins at 55.5% to 57.5% vs 57.2% expected on Wall Street with operating margin between 45.5% to 47.5% vs 46.9% awaited by Bloomberg analysts. Since 2021, TSMC has consistently outperformed analysts’ forecasts.

The company’s performance reflects ongoing robust demand for advanced AI chips, especially from Nvidia and Advanced Micro Devices (AMD). TSMC noted that demand currently exceeds its manufacturing capacity. AI-related orders remain strong, and the company projects that 2025 sales will grow by a mid-20% range in U.S. dollar terms.

Revenues rose approximately 40% in H1 2025, despite the stronger Taiwanese dollar tempering growth in nominal currency terms. The firm has pledged to invest an additional USD 100 billion in expanding manufacturing capacity in Arizona, alongside continued expansion in Japan, Germany, and Taiwan. However, TSMC did highlight persistent geopolitical tensions and a fragile global landscape.

TSMC Comments

We assume long-term gross margins will remain at 53% or higher. Demand from the AI sector is accelerating rapidly. Production capacity for 3nm chips will remain constrained in the coming years, and demand for 5nm, 3nm, and in the future 2nm chips remains very high. Currently, we are utilizing 7nm lines to support 5nm production. The profitability of 2nm chip production is already higher than that of 3nm lines. Our CAPEX for 2025 is projected between USD 38 billion and USD 42 billion.

The development of the 2nm production line is progressing as forecasted. Demand is strong, and the likelihood of a sudden drop in orders appears low. Fluctuations in the Taiwanese dollar continue to weigh on our results and will impact future reports. The company is accelerating chip production in Arizona and plans to build 11 new manufacturing facilities in Taiwan.

Approximately 30% of all 2nm chip production capacity will be located in Arizona. Mass production of 2nm chips is on track to begin in the second half of 2025. At present, our production capacity is very tight, and we are not concerned about excess capacity in older nodes, as we operate based on customer-specific orders. Tariff-related risks remain, but so far we have not observed any changes in customer behavior.

TSMC.US stock, D1 chart

Source: xStation5