TSMC Earnings: Refining Guidance and Expansion Plans Amid Strong AI Demand

Key Morningstar Metrics for TSMC

• : $428
• : ★★★★

• Morningstar Economic Moat Rating

  : Wide

• Morningstar Uncertainty Rating

  : Medium

What We Thought of TSMC’s Earnings

Taiwan Semiconductor Manufacturing Co. TSMC refined its 2026 US dollar revenue and capital expenditure guidance to the upper bounds of prior ranges. First-quarter revenue topped TWD 1.1 trillion ($35.9 billion), up 6% sequentially. Gross margin grew 746 basis points from the prior quarter to 62.3%.

Why it matters: Capex guidance is now approaching the previous upper bound of $56 billion, while revenue growth guidance has been raised to above 30% from about 30%. Both support the strength of the near-term and three- to five-year demand outlook for artificial intelligence applications.

• We think the second wave of 3-nanometer capacity expansions in Taiwan, Arizona, and Japan, and management’s view that 3 nm profitability will converge to the corporate average in the second half, imply manufacturing yields are mature enough to meet the requirements of large-size AI chips.
• Surging commodities and raw materials costs caused by the Iran war are factored into TSMC TSM‘s outlook. We believe the financial impact from higher costs is secondary to the ramp-up of 2 nm chips and non-Taiwan production. We assume no material supply chain disruptions in our forecasts.

The bottom line: We retain our TWD 2,700/$428 fair value estimate for wide-moat TSMC, as the earnings bring little change to our long-term view. The stock is attractive as the market is overly wary of Intel leveraging its packaging solutions to entice customers to switch.

• Investors expect Intel to win customers more easily through its EMIB packaging offerings, threatening TSMC’s long-term market share. We view these concerns as overblown, as TSMC is aggressively expanding advanced packaging capacity and developing new versions that improve system performance.

Between the lines: The US’ recently proposed bipartisan Match Act seeks to tighten equipment exports to China. We think it makes procurement for Japan’s and Germany’s specialty fabs slightly easier, as TSMC may not need to compete with aggressive Chinese buyers.