TSMC Q2 profit surges 77% to NT$706.6B, crushing estimates on AI demand

Taiwan Semiconductor Manufacturing Co.'s second-quarter profit surged 77% to NT$706.6 billion, crushing analyst estimates as AI chip demand pushed gross margins past the high end of guidance.

"The AI demand we see is extremely robust, and even after our US capacity comes online, we will still be unable to meet US customer demand for years," Chief Executive Officer C.C. Wei said in prepared remarks.

Revenue rose 36% to NT$1.27 trillion ($40.2 billion), with net profit exceeding the NT$623.7 billion average estimate from 18 analysts compiled by LSEG by 13%. Gross margin hit 67.7%, above the company's 65.5% to 67.5% guidance, while operating margin reached 60.3% versus a 56.5% to 58.5% forecast. Net profit margin widened to 55.6% from 44.1% a year earlier. Advanced process nodes — 7 nanometers and below — contributed 77% of wafer revenue, with 3nm at 30%, 5nm at 33% and the new 2nm node contributing about 3% for the first time since entering high-volume manufacturing in the fourth quarter of 2025.

The results reinforce TSMC's position as the primary beneficiary of a global AI infrastructure buildout that is expected to exceed $725 billion this year from hyperscalers including Meta Platforms Inc. The company's 2026 capital expenditure is near a record $56 billion, reflecting management's conviction that demand will outstrip supply for years. The key question for investors is whether the spending by cloud giants will generate returns that justify the pace of capacity expansion.

Gross Margin Tops Guidance as Pricing Power Holds

The 67.7% gross margin — 20 basis points above the top of TSMC's guided range — shows the company extracting more value from each wafer as customers compete for scarce advanced-node capacity. TSMC raised prices on advanced processes by 5% to 10% this year, according to tech media reports, and the 2nm node commands a premium over 3nm. The company has said N2 will dilute full-year gross margin by 2 to 3 percentage points during its initial ramp, but the Q2 result suggests pricing uplift from existing nodes is offsetting that drag. Overseas fab expansion is expected to dilute margins by an additional 2 to 4 points over time.

Supply Constraints Extend Beyond Chips to Packaging

TSMC's CoWoS advanced packaging capacity remains the primary bottleneck in AI chip delivery. Nvidia Corp. has booked more than 60% of CoWoS capacity through 2026, according to supply chain checks. TSMC is expanding CoWoS capacity from about 35,000 wafers per month at the end of 2024 to 120,000 to 140,000 by the end of 2026 — a fourfold increase — but specialized equipment lead times of 12 to 18 months mean the constraint will persist. The packaging shortage creates an opening for rivals such as Samsung Electronics Co. and Intel Corp., though both remain years behind in CoWoS-equivalent technology.

Investment Angle

TSMC's American depositary receipts, each representing five ordinary shares, have gained about 38% in 2026. At roughly $420, the stock trades at about 28 times consensus 2026 earnings per share of $15.69, according to FactSet. Bank of America analyst Haas Liu, who rates TSMC a buy with a $590 target, said supply chain checks continue to indicate a strong AI demand pipeline and that the company could raise its full-year revenue growth outlook from the current forecast of more than 30%. The bull case depends on whether AI infrastructure spending sustains its current trajectory — a question that will be tested when Nvidia reports its own results later this quarter.

This article is for informational purposes only and does not constitute investment advice.