TSMC postQ: AI drives beat, outlook raised; higher capex weighs on sentiment

Taiwan Semiconductor Manufacturing/ TSMC (TWSE: 2330, NYSE: TSM) delivered another strong quarter as AI-related demand continued to drive robust growth across its advanced manufacturing technologies, prompting analysts to raise expectations for both revenue and earnings despite materially higher capital spending.

Key takeaways

Q2 revenue reached $40.2 billion, modestly ahead of Visible Alpha consensus, while diluted EPS of $0.86 exceeded expectations by 12.6%. Profitability was also stronger than anticipated, with a gross margin of 67.72% and operating margin of 60.34% both beating consensus expectations.

Growth was driven primarily by stronger-than-expected demand for the company's leading-edge process technologies. 3nm wafer revenue exceeded expectations by 4.2%, while 5nm revenue beat by 6%, more than offsetting weaker-than-expected initial contributions from the 2nm node, where revenue came in about 51% below consensus as production ramps remained in their early stages.

The results also pointed to stronger manufacturing activity than analysts had anticipated. Wafer shipments came in 4.8% above consensus and fab utilization reached 96.6%, roughly 400 basis points above consensus expectations, indicative of higher production volume being the primary driver of the earnings beat. Wafer average selling prices, by contrast, came in below expectations.

Guidance 

Management reinforced the strong operating momentum by raising its full-year outlook.

• Revenue: Growth of slightly above 40%, compared with previous guidance for more than 30%,
• Capex: $60 billion-$64 billion, significantly above the preQ consensus expectation of $53.6 billion, as TSMC accelerates investments in 2nm manufacturing and advanced packaging capacity. 

For the third quarter, management guided for:

• Revenue: $44.6 billion-$45.8 billion above preQ consensus
• Gross margin: 65%-67%, consistent with analyst expectations.
• Operating margin: 56%-58%, broadly consistent with analysts’ expectations.

Consensus revisions

Visible Alpha consensus revisions point to stronger growth expectations, driven by higher utilization and advanced-node demand. Analysts have raised Q3 revenue by 3.4% to $45.4 billion, while full-year 2026 revenue forecasts are up 4.1% to $171.6 billion. Analysts have also raised full-year EPS and net income estimates, supported by higher margin expectations.

Upward revisions were concentrated in TSMC’s 3nm and 5nm businesses, reflecting continued demand from AI and high-performance computing customers. By contrast, expectations for 2nm revenue were reduced as the technology remains in the early stages of commercial ramp-up.

Analysts expect growth to be driven primarily by higher wafer volumes and utilization, rather than pricing, with wafer shipment estimates and utilization assumptions increasing for Q3 and the full-year.

The key trade-off remains higher investment intensity. Following the increased capex outlook, analysts have raised capital expenditure estimates, while lowering free cash flow expectations.

Share price reaction 

Although the shares traded lower following the earnings release as investors focused on the increased capital investment and management's comments that the accelerated 2nm ramp will weigh on margins in the near term, consensus revisions indicate that analysts remain increasingly confident in the durability of AI-driven demand.

This article was published by Visible Alpha, part of S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.