The ultimate gatekeeper of AI computing power! Taiwan Semiconductor is about to release its report card—can it create another myth?

Author | Eric

The world's leading semiconductor foundry $Taiwan Semiconductor (TSM.US)$ will announce its Q4 earnings on January 15. The market is focused on what kind of profit results this company, which plays the role of the 'last shovel seller' in AI, will deliver.

Consensus estimates for key financial data:

- In dollar terms, the consensus expectation for Q4 revenue is$32.38 billion, representing a year-over-year increase of20%, a 2% decline quarter-over-quarter, with the previous guidance range being$32.2-$33.4 billion. In New Taiwan Dollar terms, Q4 revenue was NT$1,046 billion, representing a 20% year-over-year increase and a 6% quarter-over-quarter rise.

- Market consensus expects Q4 gross margin60.4%, up 1.4 percentage points year-over-year and 0.9 percentage points quarter-over-quarter, with the previous guidance range at59%-61%。

- Market consensus expects Q4 operating margin50.7%, up 2.2 percentage points year-over-year and 0.1 percentage points quarter-over-quarter, with the previous guidance range at49%-51%。

- In dollar terms, market consensus expects Q4 net profit to beUS$14.58 billion, representing a year-over-year increase of26%, down 3% quarter-over-quarter.

Notably, exchange rates have a significant impact on results,causing large differences between TWD and USD performance.Based on last quarter’s earnings report providing Q4 FX guidance (USD/NTD=30.6), Q4 USD revenue reached34.19 billion US dollars, already above the guidance range of 32.2 to 33.4 billion US dollars.

The three key highlights of this report are:

1. Updated 2026 full-year revenue guidance and long-term AI growth guidance

The current market consensus expects Taiwan Semiconductor’s 2026 full-year USD revenue to grow by approximately 25% year-over-year. In the last quarter, Taiwan Semiconductor's management indicated that AI (GPU+ASIC+HBM controller) revenue from 2024-2029 would exceed the previous expectation of a CAGR in the mid-40% range; whether these figures will be updated in this earnings report is worth watching.

2. What are the plans for future CoWoS capacity expansion?

The global supply bottleneck for AI chips is primarily centered on Taiwan Semiconductor’s CoWoS, with Taiwan Semiconductor even outsourcing some processes to $Amkor Technology (AMKR.US)$ and $ASE Technology (ASX.US)$ , but in fact, Taiwan Semiconductor itself has been relatively cautious about expanding its CoWoS capacity. Previously, management stated that CoWoS capacity would double in 2025, and demand momentum would continue into 2026, aiming to increase capacity further to achieve supply-demand balance. Currently, only 10%-20% of capex is allocated to advanced packaging.

Goldman Sachs recently issued a research report raising Taiwan Semiconductor's CoWoS capacity and shipment expectations, especially increasing the forecast for 2027 by 85%. More details will depend on the latest guidance from Taiwan Semiconductor’s management in this earnings report.

3. As the most cautious wafer fab in terms of capacity expansion, will capital expenditures significantly increase in 2026?

The recent rise in U.S.-listed semiconductor equipment companies’ stock prices has far outpaced other semiconductor firms. Besides betting on storage manufacturers' capacity expansion momentum turning around, investors are also wagering on Taiwan Semiconductor—the top foundry player—posting capex growth in 2026.

Due to the semiconductor industry's pronounced cyclical nature, Taiwan Semiconductor has historically been very cautious about its capacity expansion plans, only proceeding when long-term sustainable demand is evident. Concerns over an AI chip supply glut that have recently emerged in the market can be seen as unfounded. The current market consensus expects Taiwan Semiconductor’s full-year 2026 capex to reach about $45.4 billion, higher than the $40-42 billion range for 2025. Stay tuned for updates on guidance in this earnings report.

Current State of Options

The options market for Taiwan Semiconductor currently showsa clear defensive posture, with the put/call ratio climbing to 1.64, implied volatility reaching 43.33%, and significantly exceeding historical volatility. This indicates that although Wall Street generally expects AI-driven demand to boost profits, institutional investors are actively hedging against downside risks, guarding against the possibility of the earnings report or forward-looking guidance falling short of high market expectations.

Summary

Overall, as the gatekeeper of AI chip production capacity, every move by Taiwan Semiconductor impacts global AI-themed investments. The current quarter's financial performance may not be as crucial as the management’s forward-looking guidance for the industry. Looking back at history, Taiwan Semiconductor’s stock price closed higher on earnings days in 7 out of the last 9 quarters. What’s your take on this?

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