Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE:TSM) on Thursday delivered fourth-quarter results that blew past analyst expectations, driven by global demand for its advanced processor technologies essential for artificial intelligence applications.
As a key supplier to tech giants like Nvidia Corp. (NASDAQ:NVDA) for its graphics processing units (GPUs) and Apple Inc. (NASDAQ:AAPL) for its smartphones, the company’s strong results reflect its role in the industry ecosystem.
The company also provided an optimistic revenue forecast for the first quarter of 2026.
Taiwan Semiconductor reported quarterly net sales of $33.73 billion (1.05 trillion New Taiwanese dollars), up 20.5% year-over-year (Y/Y), topping the analyst consensus estimate of $33.27 billion. Net sales grew 5.7% quarter-over-quarter (Q/Q).
Net income and earnings per share were $16.31 billion (505.74 billion New Taiwanese dollars) and $3.14, up by 35.0% Y/Y, topping the analyst consensus estimate of $2.79.
In U.S. dollar terms, revenue growth was 25.5% Y/Y and up by 1.9% Q/Q. The top-line performance topped the company’s guidance of $32.2 billion to $33.4 billion.
Technology and Platform Revenue Breakdown
The company stated that 3-nm technologies accounted for 28% of the total revenue, 5-nm technologies accounted for 35%, and 7-nm technologies accounted for 14%. Advanced technologies (7nm and below) accounted for 77% of total wafer revenue.
By platform, High-Performance Computing (HPC) and Smartphones represented 55% and 32% of net revenue, respectively, while IoT, Automotive, DCE, and Others each represented 5%, 5%, 1%, and 2%, respectively.
From a geographic perspective, revenue from customers based in North America accounted for 74% of total net revenue in the fourth quarter of 2025. In contrast, revenue from Asia Pacific, China, Japan, and EMEA (Europe, the Middle East, and Africa) accounted for 9%, 9%, 4%, and 4% of total net revenue, respectively.
Profitability and Capital Spending
Taiwan Semiconductor’s AI technology moat helped it expand its quarterly gross margins by 330 basis points to 62.3%, topping the company’s quarterly guidance of 59.0% to 61.0%. The margin expansion reflects a higher capacity utilization rate and cost improvement efforts.
The operating margin expanded by 5000 basis points to 54.0%, exceeding the company’s quarterly outlook of 49.0% to 51.0%.
Free cash flow increased by 229.22 billion New Taiwanese dollars to an inflow of 368.60 billion New Taiwanese dollars in the quarter, as the increase in operating cash flow outpaced the increase in capital expenditures.
Net cash generated from operating activities rose to 725.51 billion New Taiwanese dollars in the fourth quarter, up from 620.21 billion New Taiwanese dollars a year earlier.
The company ended the quarter with 3.1 trillion New Taiwanese dollars, or $98 billion, in cash and marketable securities.
Capital expenditures on a consolidated basis totaled $11.51 billion in the fourth quarter of 2025.
The board approved a 6.00 New Taiwanese dollars cash dividend for the third quarter of 2025.
Earnings Call
Taiwan Semiconductor used its fourth-quarter earnings call to push back on fears of an AI demand bubble, with management saying customer demand remains strong across consumer, enterprise, and sovereign segments.
CEO C.C. Wei said the company has directly validated AI demand with hyperscalers and their end customers, concluding that AI is a multi-year structural growth driver rather than a short-term cycle.
“All in all, I believe in my point of view, the AI is real. Not only real, it is starting to grow into our daily life. We believe that is kind of. We call it AI Megatrend,” Wei said.
While capacity remains tight in the near term, the company is addressing supply constraints through productivity gains, higher utilization and node optimization, alongside a sharp increase in capital spending.
The company is also accelerating its U.S. manufacturing expansion, particularly in Arizona, to support long-term AI and high-performance computing demand, while reiterating confidence in sustained revenue growth and profitability.
Analysts also raised questions about competitive risks from Intel Corp.’s (NASDAQ:INTC) foundry ambitions, particularly following public comments highlighting potential partnerships between Intel and large U.S. chip designers.
Wei acknowledged Intel as a “formidable competitor” but emphasized the structural and technical barriers to displacing Taiwan Semiconductor at the leading edge.
He noted that advanced semiconductor manufacturing requires years of co-development, with two to three years of preparation followed by additional time to achieve volume ramp and yield maturity.
Wei said Taiwan Semiconductor does not underestimate competitors’ progress but stressed confidence in the company’s long-standing technology leadership, manufacturing execution, and customer trust built over decades.
“Are we afraid of it? For 30-some years we always in a competition with our competitor, so no we have a confidence to keep our business grow as we estimated.” Wei said.
CFO Wendell Huang reiterated that pricing remains “strategic, not opportunistic,” with pricing gains largely offsetting inflationary cost pressures.
Outlook
Taiwan Semiconductor guided first-quarter 2026 revenue of $34.60 billion to $35.80 billion, versus the $32.52 billion analyst consensus estimate. It expects a gross margin of 63% to 65% and operating profit margins of 54% to 56%.
The chipmaker projects its full-year 2026 revenue to grow by approximately 30% in USD terms.
It is also planning significant capital expenditures of $52-$56 billion in 2026, with 70-80% allocated to advanced technologies.
TSM Price Action: Taiwan Semiconductor shares were up 5.26% at $344.30 during premarket trading on Thursday. The stock is trading at a new 52-week high, according to Benzinga Pro data.
Photo by Jack Hong via Shutterstock
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