TSMC (TSM) posts 58% profit jump as AI chip orders push Q1 revenue to NT$1.13tn record

Taiwan Semiconductor Manufacturing Company (TSM) reported March-quarter net income of NT$572.48 billion ($18.2 billion), a 58.3 per cent year-on-year surge that beat analyst estimates, as AI chip orders continued to strain capacity at the world’s largest contract chipmaker.

Revenue for the three months to 31 March climbed 35.1 per cent in New Taiwan dollar terms to NT$1,134.10 billion, or $35.90 billion in US dollars — a 40.6 per cent increase — the company’s fourth consecutive record quarter, according to its earnings filing with the US Securities and Exchange Commission. The topline beat the NT$1.08 trillion consensus estimate compiled by analysts ahead of the print.

High-performance computing, the division that houses TSMC’s AI accelerator and data-centre chip orders, generated 61 per cent of wafer revenue in the quarter, up 20 per cent from the prior three months, according to the company’s quarterly results page. Sales of 3-nanometre process technology accounted for 25 per cent of wafer revenue, while the mature 5nm node contributed 33 per cent. The smartphone segment, TSMC’s second-largest platform, fell to 28 per cent of revenue from 35 per cent a year earlier, as the business tilted further toward AI-driven demand.

Gross margin reached 66.2 per cent, 120 basis points above the top end of the company’s own 63 to 65 per cent guidance range. Operating margin widened to 53.4 per cent, from 47.8 per cent in the same quarter of 2025. Net income of NT$572.48 billion was the fourth straight quarterly record and pushed trailing twelve-month earnings past NT$2 trillion for the first time.

“Our business in the first quarter was supported by strong demand for our leading-edge process technologies,” senior vice-president and chief financial officer Wendell Huang said in the filing. Huang attributed the margin expansion to higher utilisation rates across the 3nm and 5nm fabs and a favourable foreign-exchange tailwind from the stronger US dollar against the Taiwan dollar.

Chief executive C.C. Wei was more direct. “AI-related demand continues to be extremely robust,” Wei said. “Advances in AI are driving increased computation and, thus, demand.” The remarks, reported by CNBC, came as hyperscale cloud providers and enterprise customers continued to book leading-edge capacity well into 2027. Wei declined to name specific customers but said TSMC’s advanced packaging capacity — a persistent bottleneck for AI chip deliveries — would expand at a compound annual rate above 50 per cent through 2027.

The guidance

TSMC guided for second-quarter revenue of $39.0 billion to $40.2 billion, implying sequential growth of 9 to 12 per cent at the midpoint. Gross margin for the June quarter is expected between 65.5 and 67.5 per cent — at the top end, a multi-year high — keeping the metric well above the company’s long-term target of 53 per cent. The full-year 2026 revenue growth outlook was raised to above 30 per cent in US dollar terms, up from a prior forecast of mid-to-high 20s, according to Druckfin.

Capital expenditure for the full year was pegged at $52 billion to $56 billion, up from roughly $44 billion in 2025. The bulk of the increase is earmarked for advanced packaging lines — chip-on-wafer-on-substrate, or CoWoS, capacity is the binding constraint on how many AI accelerators TSMC can ship — and for the ramp of the 2-nanometre node, which remains on track for volume production in the second half of 2026.

William Li, senior analyst at Counterpoint Research, said supply constraints were the central issue for TSMC in 2026. “The narrative for 2026 is as much about resource constraints as it is about growth,” Li told CNBC. “Demand still significantly outpaces supply and isn’t showing any major sign of slowing down.” Li added that TSMC’s ability to pass through higher wafer prices to its fabless customers gave it pricing power that few other semiconductor firms can match.

What the stock is doing

TSMC’s American depositary receipts traded at $417.72 on the New York Stock Exchange at the close before the earnings release, just below their 52-week high of $421.97. The stock has gained 49 per cent over the past six months, lifting the company’s market capitalisation to about $2.17 trillion and its trailing price-to-earnings ratio to 35.7. The forward P/E of 21.7 suggests the sell-side still expects rapid earnings growth to compress the multiple through the remainder of 2026.

The TSM ADR slipped 0.11 per cent in the regular session but has added less than 1 per cent since the results crossed the wire, a muted reaction that suggests the beat was partly priced in after the stock’s six-month run. Options markets had implied a post-earnings move of 4.5 per cent in either direction.

The earnings beat and raised guidance leave one open question for the second half: whether TSMC can sustain 60-plus per cent gross margins while spending $56 billion on expansion. The AI investment cycle has now delivered four consecutive record quarters. Whether it can deliver a fifth depends on the pace at which new packaging capacity comes online — and on whether hyperscale customers maintain their current rate of AI infrastructure spending.