The ultimate enabler! Taiwan Semiconductor delivers a perfect report card: AI demand is far from peaking, and the feast has just begun.

Author | Eric

The world's leading semiconductor foundry $Taiwan Semiconductor (TSM.US)$ Released Q4 2025 earnings report, this company – which plays the role of the ultimate 'AI pickaxe seller' – delivered a set of revenue, gross margin, and net profit figures surpassing expectations along with strong long-term growth guidance.

The three key highlights of the earnings report:

1. The full-year 2026 revenue guidance and long-term AI outlook significantly exceeded expectations, with AI being the growth pillar

Previously, market consensus expected TSMC’s 2026 full-year US dollar revenue to increase by about25%, Taiwan Semiconductor’s management expects the company's dollar-denominated revenue to grow year-over-year by 2026.30%。

Last quarter, Taiwan Semiconductor’s management indicated that AI (GPU+ASIC+HBM controller) revenue for 2024-2029 is expected to exceed previous forecasts,CAGR mid-40%This quarter, the growth guidance has been raised tomid-to-high 50s%。

Taiwan Semiconductor claims that its AI-related revenue already accounts forhigh-teens%of total revenue in 2025. The adoption of AI models continues to rise, driving increasing computational demands and boosting demand for advanced process nodes, while also raising Taiwan Semiconductor’s overall CAGR forecast for 2024-2029 from15%-20%to25%, and gross margin improved from53%Raised to56%。

Notably, despite the significant upward revision in long-term guidance, Taiwan Semiconductor’s CEO reiterated that management’s guidance has always been relatively conservative, implying further upside potential may exist in the future.

2. As the most cautious wafer fab in terms of capacity expansion, a significant increase in capital expenditures for 2026 has boosted confidence in the semiconductor equipment sector

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.

The market previously had a consensus expectation that Taiwan Semiconductor's full-year capex for 2026 would be aroundUSD 45.4 billion, but the guidance provided in this earnings call isUSD 52-56 billion, representing a year-over-year growth of 27%-37%. Semiconductor equipment stocks rose accordingly. Management emphasized that capex over the next three years will be significantly higher than the scale of the past three years (USD 101 billion).

Due to the pronounced cyclical nature of semiconductors, Taiwan Semiconductor has historically been very cautious about capacity expansion plans unless long-term sustainable demand is evident. Concerns about an oversupply of AI chips that have recently emerged in the market are therefore largely unfounded.

3. Guidance for Q1 2026 dispels market concerns about seasonal weakness

Most analysts on Wall Street previously believed that Taiwan Semiconductor’s revenue would slow down in Q1 2026 due to the seasonally weak consumer electronics period, but management once again provided guidance that countered these market concerns in this earnings report.

Taiwan Semiconductor expects its Q1 2026 revenue in USD to be34.6-35.8 billion US dollars, growing by36%-40%, growth rate accelerates, gross margin63%-65%, N3 gross margin will surpass the company's average level by 2026, operating profit margin54%-56%, implying net profit margin is expected to reach50%threshold, which is exceptionally rare for a capital-intensive foundry company.

Q4 Core Financial Data

– In dollar terms, Q4 revenue was US$33.73 billion, representing a year-over-year increase of25%, and a 2% quarter-over-quarter increase, surpassing market consensus of US$32.38 billion and exceeding the previous guidance range of US$32.2-33.4 billion. In New Taiwan Dollar (NTD) terms, Q4 revenue reached NTD1.046 trillion, marking a 20% year-over-year increase and a 6% quarter-over-quarter increase.

– Q4 gross margin62.3%, up 3.3 percentage points year-over-year and 2.8 percentage points quarter-over-quarter, higher than market consensus of 60.4% and surpassing the prior guidance range of 59%-61%.

– Q4 operating profit margin54%, up 5.5 percentage points year-over-year and 3.4 percentage points quarter-over-quarter, surpassing market consensus of 50.7% and also higher than the previous guidance range of 49%-51%.

– In dollar terms, Q4 net profit was $16.3 billion, a year-over-year increase of41%, an 8% increase quarter-over-quarter, exceeding market consensus of $14.58 billion.

Q4 Business Breakdown

– Revenue from the HPC business, mainly comprising AI chips and PC chips, was approximately NT$581 billion, representing a year-over-year increase of about26%, a 5% increase quarter-over-quarter, accounting for 55% of total revenue.

– Revenue from the mobile business, primarily smartphone chips, was approximately NT$329 billion, reflecting a year-over-year increase of about10%, an 11% increase quarter-over-quarter due to seasonal growth driven by the release of new iPhone models, contributing 32% of total revenue.

– IoT business revenue was approximately NT$55 billion, with a year-over-year increase of about29%, up 3% from the previous quarter, accounting for 5% of total revenue.

– Automotive business revenue was approximately NT$50 billion, increasing by about33%, down 1% from the previous quarter, accounting for 5% of total revenue.

This quarter, 3nm process contributed to 28% of revenue, 5nm contributed to 35%, 7nm accounted for 14%, and nodes below 7nm in aggregate contributed to77%, reaching a record high.

Summary

Overall, as the gatekeeper of AI chip production capacity, every move by Taiwan Semiconductor stirs the nerves of global AI-themed investments. The long-term demand guidance for AI released by management in this earnings report is undoubtedly a shot in the arm for investors in the AI sector.

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