Taiwan Semi raises 2026 outlook after Q1 profit surges amid AI demand
View original at seekingalpha.com“"From what I remember, the market was initially fearing that TSMC was nearing the peak in margins, but in Q1, we saw an expansion from ~58% in GP margin to over 66%, which is insanely solid for such a large entity."”
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AI-related demand continues to be extremely robust
60% confidenceHistorically, TSMC does not add additional capacity to a node once it has reached its target capacity, but is stepping up CapEx investment to increase N3 capacity to meet strong demand in AI application
60% confidenceQ1 earnings solid with gross and operating margins above guidance; Q2 guidance above expectations with continued margin expansion; TSMC confident in market share; lack of meaningful revenue and capex upside may be mild disappointment but estimates likely to move up over next 2-3 quarters
60% confidenceAt TSMC, a higher level of capital expenditures is always correlated with higher growth opportunities in the following years
60% confidenceTSMC remains committed to a sustainable and steadily increasing cash dividend per share on both an annual and quarterly basis
60% confidenceTSMC saw gross margin expansion from ~58% to over 66% in Q1, showing major pricing power and superior execution, with business mix shifting toward higher-value products; rates stock a buy after the print
60% confidenceGiven the recent situation in the Middle East, prices for certain chemicals and gases are likely to increase, which may impact profitability but it is too early to quantify
60% confidenceTSMC forecasts gross margin dilution from overseas fab ramp-up to be 2-3% in early stages and widen to 3-4% in latter stages
60% confidenceTSMC does not expect any near-term impact on operations for material supply and works closely with Taipower and Taiwan government to ensure stable and sufficient energy supply
60% confidenceRaised 2026 sales guidance and capex guidance is a positive surprise; stronger conviction reflects stronger-for-longer Cloud AI demand and requirement to speed-up capacity expansion
60% confidenceWith another strong quarter, stronger Q2 forecast, and competitive risk seemingly years away, Wedbush sees no reason to shift constructive view on TSMC
60% confidenceInitial ramp-up of 2nm technology will start to dilute gross margin in H2 2026 with expected 2-3% dilution for full year 2026
60% confidenceMoving into second quarter 2026, business expected to be supported by continued strong demand for leading-edge process technologies
60% confidenceOur business in the first quarter was supported by strong demand for our leading-edge process technologies
60% confidenceBest highlight is 66.2% GM reported for Q1 2026 and 66.5% GM guided for Q2 2026; AI demand outlook remains robust; TSMC trying to balance customer demand and avoiding CapEx overrun; history shows betting on TSMC margin compression has negative risk/reward
60% confidence
Data points we hold from this source
| Taiwan Semiconductor Manufacturing Company · net income | 572.48 billion_TWD |
| Taiwan Semiconductor Manufacturing Company · gross margin | 66.2 percent |
| Taiwan Semiconductor Manufacturing Company · net revenue | 1134 billion_TWD |
| Taiwan Semiconductor Manufacturing Company · capex | 11.1 USD |