TSMC Profit Jumps 35% on AI Chip Demand, Lifts Capex
Taiwan Semiconductor posts record Q4 profit of $16 billion as advanced chips hit 77% of revenue. Plans $56 billion 2026 capex for 2nm ramp.
Taiwan Semiconductor posted a blowout fourth quarter that sent chip stocks rallying Thursday morning.
The world's largest contract chipmaker reported net profit of NT$505.74 billion ($16 billion) for Q4 2025, up 35% from a year ago and well above Bloomberg estimates of NT$467 billion. Revenue climbed 20.5% to NT$1.046 trillion, or $33.73 billion in dollar terms—a 25.5% gain when currency-adjusted.
TSMC shares jumped 6% in premarket trading, pulling the entire semiconductor sector higher. Nvidia and AMD gained more than 1% each, while ASML surged 7% in Amsterdam to a record high above $500 billion market cap.
AI Is Driving Everything
Advanced chips built on 7-nanometer and smaller process nodes accounted for 77% of wafer revenue in Q4, up from 74% for full-year 2025 and 69% in 2024. That's the clearest signal yet of AI's dominance in TSMC's product mix.
The company fabricates processors for Nvidia, Apple, AMD, and virtually every major chipmaker pushing the AI compute frontier. When Nvidia needs more H100s or Apple wants M4 chips, they go to TSMC. There's no real alternative at the bleeding edge.
Gross margin held at 62.3% while net margin hit 48.3%—numbers that would make any manufacturer jealous. TSMC's near-monopoly on advanced logic gives it pricing power few companies enjoy.
$56 Billion Capex Signals Long-Term Confidence
The bigger story may be what comes next. CFO Wendell Huang guided 2026 capital expenditure of $52-56 billion, up from $40.9 billion in 2025. That 29-37% increase reflects TSMC's push into 2-nanometer production, which begins ramping this year.
Depreciation will rise "high-teens percent" as those fabs come online. CEO C.C. Wei acknowledged the timing reality: new fabs take two to three years to contribute meaningfully. The 2026 spending is really about 2028 and 2029 supply.
"We are planning for the supply-demand gap to narrow by then," Wei said on the earnings call. Translation: TSMC expects AI chip demand to stay strong for years, not quarters.
Q1 2026 guidance came in at $34.6-35.8 billion in revenue, implying continued momentum. IDC now expects TSMC's full-year 2026 revenue to grow 25-30% in dollar terms, up from its prior 22-26% forecast.
What It Means for the Sector
TSMC's results validate the AI infrastructure buildout that's driven semiconductor stocks for two years. The chip rally we covered last week has fundamental support—this isn't just momentum chasing.
CFO Huang did offer one cautionary note: mid-to-long-term margins face pressure as TSMC builds overseas capacity, particularly its Arizona fabs, where costs run higher than Taiwan. The company is spending to meet demand, but the economics get harder at scale.
For now, though, TSMC remains the indispensable partner for AI's infrastructure buildout. The numbers speak for themselves: 35% profit growth, 77% advanced node concentration, and a capex plan that assumes the boom continues through the decade.
That's not a company hedging its bets. That's a company going all-in on AI.