Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC) revealed its fourth-quarter financials, significantly exceeding market expectations amid robust global demand for its sophisticated semiconductor manufacturing technologies, especially those powering artificial intelligence (AI) applications. The results underscore TSMC's strategic importance as a supplier to major technology firms, including Nvidia Corporation, known for its graphics processing units (GPUs), and Apple Inc., a leader in the smartphone sector.
The company's net sales reached $33.73 billion (equivalent to 1.05 trillion New Taiwanese dollars), marking a 20.5% increase compared to the previous year and outperforming the analyst consensus of $33.27 billion. Sequentially, quarterly revenue rose by 5.7%. Net income registered at $16.31 billion (505.74 billion New Taiwanese dollars), equating to earnings per share of $3.14. This represents a substantial 35.0% increase year-over-year, surpassing the expected $2.79 per share. When denominated in U.S. dollars, revenue growth stood at 25.5% annually and 1.9% quarter-over-quarter. The top-line outcome exceeded TSMC’s own forecast range of $32.2 billion to $33.4 billion.
Technological and Market Segment Composition
TSMC's revenue was substantially driven by its advanced process technologies, with 3-nanometer (nm) nodes contributing 28%, 5-nm nodes 35%, and 7-nm nodes 14%, combining to 77% of wafer revenue derived from leading-edge platforms. The breakdown by end market platforms showed High-Performance Computing (HPC) and Smartphones accounted for 55% and 32% of net revenue, respectively. Other categories included Internet of Things (IoT) and Automotive segments, each comprising 5%, with Digital Consumer Electronics (DCE) and Other sectors making up 1% and 2%, respectively.
Geographically, North American customers represented 74% of the revenue base for the quarter, while Asia Pacific, China, Japan, and the Europe-Middle East-Africa (EMEA) regions accounted for 9%, 9%, 4%, and 4%, respectively.
Profit Margins and Capital Investment
The company highlighted a favorable margin environment, with gross margins expanding 330 basis points to 62.3%, outperforming the guidance range of 59.0% to 61.0%. This improvement was attributed to better capacity utilization and cost reduction initiatives. Operating margins widened by 500 basis points to 54.0%, above the projected range of 49.0% to 51.0%.
Free cash flow experienced a notable increase to an inflow of 368.60 billion New Taiwanese dollars, supported by higher operating cash flow against capital expenditure growth. Operating cash flows reached 725.51 billion New Taiwanese dollars, up from 620.21 billion in the previous year's quarter. TSMC closed the period with a strong liquidity position, holding 3.1 trillion New Taiwanese dollars, or approximately $98 billion, in cash and marketable securities. Capital expenditures during the quarter were $11.51 billion.
The Board of Directors approved a cash dividend of 6.00 New Taiwanese dollars for the third quarter of 2025.
Management Commentary on AI Demand and Competitive Landscape
During the earnings call, TSMC's management addressed concerns regarding a potential AI demand bubble. CEO C.C. Wei underscored that customer demand remains solid across consumer, enterprise, and sovereign domains. Wei emphasized the company's direct verification of sustained AI-driven demand through close collaboration with large cloud service providers and their clientele, describing AI as a "multi-year structural growth driver" rather than an ephemeral cycle.
Wei stated, "AI is real. Not only real, it is starting to grow into our daily life. We believe that is kind of what we call the AI Megatrend." While acknowledging short-term supply constraints, he outlined strategies for alleviating bottlenecks, including enhancing productivity, increasing capacity utilization, and optimizing manufacturing nodes. Investment in capacity was also sharply increased to support long-term demand.
TSMC is actively advancing its manufacturing footprint in the United States, notably in Arizona, to address growing AI and high-performance computing needs, reinforcing confidence in sustained revenue growth and profitability trajectories.
Regarding competitive risks, particularly from Intel Corporation’s foundry initiatives and reported alliances with major U.S. chip designers, Wei recognized Intel as a "formidable competitor." However, he highlighted significant structural and technical challenges inherent in high-end semiconductor manufacturing that serve as barriers to displacement at the leading edge. According to Wei, achieving volume production and yield maturity requires extensive co-development efforts spanning multiple years.
He stressed TSMC's long-term technology leadership, operational excellence, and enduring customer relationships as key competitive advantages that have maintained the company's market position for over three decades. Wei conveyed confidence in the company’s ability to maintain and grow its business despite competition.
CFO Wendell Huang emphasized a strategic pricing approach characterized by disciplined adjustments rather than opportunistic hikes, with gains designed primarily to offset inflationary cost pressures.
Outlook for 2026
TSMC issued guidance for first-quarter 2026 revenue between $34.60 billion and $35.80 billion, above the consensus analyst estimate of $32.52 billion. The company anticipates gross margins in the 63% to 65% range, with operating profit margins projected at 54% to 56%.
For the full calendar year 2026, the company expects revenue growth of approximately 30% in U.S. dollar terms. Capital expenditure plans for the year are set between $52 billion and $56 billion, with 70% to 80% dedicated to advanced technologies.
Market Response
Following the earnings announcement, TSMC shares advanced by 5.26% in premarket trading to $344.30, reaching a 52-week high according to market data provided by Benzinga Pro.