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TSM
Taiwan Semiconductor Manufacturing Company Limited
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TSMC 4Q EPS, Margin Surpass Guidance as CapEx Targets AI Growth (TSM Q4 2025 Earnings Call)

By Dr. Graph | Updated on Apr 7, 2026 | earnings

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TSMC’s earnings call centered on converting strong AI-led demand into higher profitability, while managing a still-tight supply outlook through productivity gains and a larger 2026 capital program aimed at next-cycle capacity.

Margin and earnings momentum outperformed guidance, reflecting operational leverage

TSMC reported 4Q 2025 revenue up 5.7% sequentially in NTD terms, while gross margin increased 2.8 percentage points sequentially to 62.3% and operating margin rose 3.4 points to 54%. Management attributed the margin expansion to cost improvement efforts, favorable foreign exchange, and higher overall capacity utilization, and noted operating expense leverage with operating expenses at 8.4% of net revenue.

1Q 2026 guidance emphasizes cost gains and utilization, despite overseas dilution

For 1Q 2026, CFO Wendell Huang guided revenue between $34.6 billion and $35.8 billion, implying a 4% sequential increase and 38% year-over-year growth at the midpoint. He also guided gross margin to 63% to 65% and operating margin to 54% to 56%, citing “continued cost improvement efforts” and “a higher overall capacity utilization rate,” partially offset by overseas fab dilution.

Advanced nodes and HPC lead the mix, while CapEx targets future AI capacity

On technology mix, CFO highlighted advanced technologies (7-nanometer and below) at 77% of 4Q wafer revenue, with 3-nanometer at 28%, and 5-nanometer and 7-nanometer at 35% and 14% respectively. On platform demand, HPC increased 4% quarter-over-quarter to 55% of 4Q revenue, while smartphone rose 11% to 32%. Looking ahead, management guided 2026 CapEx at $52 billion to $56 billion, with 70% to 80% allocated to advanced process technologies, supporting multiyear AI, 5G, and HPC growth.

AI demand is framed as structural, and capacity remains the near-term bottleneck

CEO C.C. Wei challenged “AI bubble” concerns by stating, “I spend a lot of time in the last 3, 4 months talking to my customer and end customers' customer,” adding that cloud providers showed evidence AI “really help their business” and that AI investment is continuing. On timing, he said it takes “2 and 3 years” to build new fabs, so the near-term focus for 2026 and 2027 is productivity and output rather than new capacity, with more meaningful supply step-ups targeted for 2028 and 2029.

Disclaimer: This report is for informational purposes only and does not constitute financial or investment advice. Always conduct your own research or consult a qualified professional before investing. Past performance is not indicative of future results.

Frequently Asked Questions

What is TSMC guiding for 1Q 2026 revenue and gross margin?
CFO Wendell Huang guided 1Q 2026 revenue to $34.6 billion to $35.8 billion and gross margin to 63% to 65%, driven by “continued cost improvement efforts” and a higher utilization rate, partially offset by overseas fab dilution.
How did TSMC’s 4Q 2025 gross margin change and why?
CFO Wendell Huang said 4Q gross margin increased by 2.8 percentage points sequentially to 62.3%, primarily due to “cost improvement efforts,” “favorable foreign exchange rate,” and “high capacity utilization rate.”
What does TSMC say is the main bottleneck for AI growth right now, power or wafer supply?
CEO C.C. Wei stated, “Today, from my point of view, still the bottleneck is TSMC's wafer supply. Not the power consumption, not yet,” while adding that power supply in the U.S. still has abundance.
How does TSMC expect gross margin to be affected in 2026 by overseas ramps and 2nm?
CFO Wendell Huang said overseas expansion is forecast to dilute gross margin by “between 2% to 3% in the early stages and widen to 3% to 4% in the latter stages,” and that 2nm ramp will dilute gross margin in 2H 2026, expecting “between 2 to 3 percentage… percent dilution for the full year of 2026.”
What did management say about the validity and duration of AI-related demand versus concerns about a bubble?
CEO C.C. Wei said he is “quite satisfied” with feedback from cloud service providers, adding they show evidence AI helps their business and that AI demand appears to be “endless” over many years, while he acknowledged he does not know how long the overall semiconductor cycle lasts.

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