TSMC’s net profit for the first quarter soared by over 60% year on year, driven largely by its ability to command premium prices for AI chips. The company reported earnings of T$361.6 billion, comfortably exceeding market forecasts and signalling robust demand for advanced semiconductors.
Industry observers point to TSMC’s pricing discipline as a key factor: customers are willing to pay up to double for the latest AI‑optimized nodes. This pricing power has allowed TSMC to protect margins even as it ramps up expensive capacity expansions.
AI Chip Revenue Set to Double on Hyperscaler Orders
Looking ahead, TSMC forecast that revenue from AI‑focused processors will double over the coming year, buoyed by massive orders from hyperscalers. Data‑centre operators are investing heavily in next‑generation AI infrastructure, locking in TSMC capacity well into 2026.
Such commitments underpin TSMC’s optimistic outlook, with the company viewing AI as its primary long‑term growth driver. Executives highlight that AI chip sales now account for a growing share of total revenue, shifting the firm’s product mix toward higher‑value offerings.
For the second quarter, TSMC projects sales between \$28.4 billion and \$29.2 billion, representing roughly 35% growth compared to the same period last year. This guidance surpasses consensus estimates, reinforcing confidence in end‑market strength despite geopolitical headwinds.
The robust outlook defies seasonal patterns that typically weigh on chip demand in mid‑year. Instead, AI spending appears to be compensating for any softening in consumer electronics, keeping TSMC’s production lines humming.
Nvidia’s Dominance in Advanced Packaging Capacity
Nvidia has locked in about 70% of TSMC’s advanced chip packaging capacity for 2025, underscoring the company’s concentration in the AI segment. This heavy allocation reflects the data‑centre giant’s reliance on cutting‑edge packaging for performance gains.
While securing such volume ensures TSMC’s fabs operate at high utilization, it also raises questions about customer diversification. Analysts warn that over‑dependence on one client could expose TSMC to demand swings if Nvidia’s inventory plans shift.
TSMC’s planned \$165 billion U.S. investment will fund five new fabrication plants, two packaging facilities, and a major R&D hub, marking the largest overseas outlay in its history. The move aims to spread production risk and secure local incentives under the U.S. CHIPS Act.
By anchoring so much capital expenditure in America, TSMC seeks to insulate itself from export controls and tariff threats. The sprawling Arizona campus is designed to host future advanced‑node processes, fortifying supply‑chain resilience.
Arizona to House 30% of Leading‑Edge 2 nm Capacity
Once fully built, about 30% of TSMC’s 2 nm production capacity will be located in Arizona, significantly reducing geopolitical concentration in Taiwan. This allocation will support U.S. customers’ needs for onshore supply, while also mitigating cross‑strait tensions.
Despite higher operating costs in the U.S., executives maintain that proximity to major chip designers justifies the expense. Local fabs also benefit from government subsidies and streamlined logistics for domestic tech firms.
In 2025, foreign shareholders have offloaded more than \$8.6 billion of TSMC stock, contributing to a roughly 20% decline in share price despite strong earnings. The sell‑off reflects broader risk aversion amid U.S.‑China tensions rather than company‑specific weakness.
Some institutional investors cite valuation concerns, arguing that geopolitical uncertainties warrant a discount on Taiwanese equities. Still, others view the dip as a buying opportunity, betting on the long‑term AI growth story.
Potential Wafer Price Hikes to Offset Cost Pressures
To counter rising production costs and potential tariff burdens, TSMC is considering wafer price increases of up to 15% for advanced nodes. Such hikes are seen as necessary to preserve gross margins amid U.S. capacity expansions.
While end customers may balk at higher chip prices, the strategic rationale is clear: sharing cost burdens enables continued investment in leading‑edge technology. Market players will watch closely to gauge the elasticity of demand.
North America now accounts for 77% of TSMC’s sales, while China’s revenue share has fallen to just 7% under tighter U.S. export controls. The shift underscores the impact of U.S. policy on global sales patterns.
TSMC has ramped up shipments to cloud‑service providers and chip designers in Silicon Valley, filling the gap left by restricted Chinese demand. However, the concentrated exposure to one region carries its own strategic risks.
Heavy Capex Plans Support Roadmaps but Pressure Cash Flows
TSMC’s capital expenditure of \$38–\$42 billion for 2025 will fund its most ambitious technology roadmap yet, including the rollout of 2 nm and future nodes. These investments are crucial to maintaining process leadership.
Yet the hefty capex also pressures near‑term free cash flow, raising questions about dividend sustainability and share‑buyback programs. Investors will balance the need for growth against immediate returns. As TSMC scales its U.S. fabs, gross margins may compress due to higher labor and construction costs compared to Taiwan. Supply‑chain adjustments and depreciation expenses from new builds will also weigh on profitability. Longer term, management expects margins to recover once facilities achieve high utilization. Until then, the company must navigate a trade‑off between global diversification and financial efficiency.
Ongoing geopolitical friction over Taiwan has injected a risk premium into TSMC’s stock, widening valuation gaps with global peers. Analysts note that any military flare‑up or aggressive tariffs could trigger sharp share volatility. This uncertainty has led some investors to apply steeper discount rates when valuing TSMC, despite its technological supremacy. The stock’s forward multiples now trade at a relative discount to other major chipmakers.
Threat of Reinstated 32% U.S. Tariff on Taiwan
The spectre of a reinstated 32% U.S. tariff on Taiwanese semiconductors remains a potential downside shock for TSMC’s business model. Though recent talks eased immediate fears, no formal guarantees have been made. A sudden tariff imposition would upend pricing strategies and could prompt customers to seek alternative suppliers. TSMC’s U.S. fabs offer some insulation, but the majority of its advanced production still occurs in Taiwan.
Samsung, SK Hynix, and emerging Chinese foundries are accelerating capacity builds to capture market share should TSMC face disruptions. These rivals are expanding their own AI‑capable nodes and advanced packaging services. In particular, Chinese fabs aim to close the technology gap under government support, while Samsung leverages its own EUV‑based processes. The looming capacity surge may intensify pricing competition.
Persistent investments by major cloud providers in AI infrastructure are expected to smooth out cyclical downturns in chip demand. Hyperscalers view semiconductors as strategic assets, placing multi‑year orders even amid economic uncertainty. This steady commitment provides TSMC with a revenue floor during broader market pullbacks. As data‑centre builds continue, the foundry can rely on robust baseline volumes for its leading‑edge nodes.
TSMC’s dual strategy of leveraging explosive AI demand while hedging trade risks with U.S. investments underscores the intricate balance the company must maintain. How effectively it navigates price adjustments, geopolitical hazards, and growing competition will shape the semiconductor landscape for years to come.
(Source:www.businesstimes.com.sg)
Industry observers point to TSMC’s pricing discipline as a key factor: customers are willing to pay up to double for the latest AI‑optimized nodes. This pricing power has allowed TSMC to protect margins even as it ramps up expensive capacity expansions.
AI Chip Revenue Set to Double on Hyperscaler Orders
Looking ahead, TSMC forecast that revenue from AI‑focused processors will double over the coming year, buoyed by massive orders from hyperscalers. Data‑centre operators are investing heavily in next‑generation AI infrastructure, locking in TSMC capacity well into 2026.
Such commitments underpin TSMC’s optimistic outlook, with the company viewing AI as its primary long‑term growth driver. Executives highlight that AI chip sales now account for a growing share of total revenue, shifting the firm’s product mix toward higher‑value offerings.
For the second quarter, TSMC projects sales between \$28.4 billion and \$29.2 billion, representing roughly 35% growth compared to the same period last year. This guidance surpasses consensus estimates, reinforcing confidence in end‑market strength despite geopolitical headwinds.
The robust outlook defies seasonal patterns that typically weigh on chip demand in mid‑year. Instead, AI spending appears to be compensating for any softening in consumer electronics, keeping TSMC’s production lines humming.
Nvidia’s Dominance in Advanced Packaging Capacity
Nvidia has locked in about 70% of TSMC’s advanced chip packaging capacity for 2025, underscoring the company’s concentration in the AI segment. This heavy allocation reflects the data‑centre giant’s reliance on cutting‑edge packaging for performance gains.
While securing such volume ensures TSMC’s fabs operate at high utilization, it also raises questions about customer diversification. Analysts warn that over‑dependence on one client could expose TSMC to demand swings if Nvidia’s inventory plans shift.
TSMC’s planned \$165 billion U.S. investment will fund five new fabrication plants, two packaging facilities, and a major R&D hub, marking the largest overseas outlay in its history. The move aims to spread production risk and secure local incentives under the U.S. CHIPS Act.
By anchoring so much capital expenditure in America, TSMC seeks to insulate itself from export controls and tariff threats. The sprawling Arizona campus is designed to host future advanced‑node processes, fortifying supply‑chain resilience.
Arizona to House 30% of Leading‑Edge 2 nm Capacity
Once fully built, about 30% of TSMC’s 2 nm production capacity will be located in Arizona, significantly reducing geopolitical concentration in Taiwan. This allocation will support U.S. customers’ needs for onshore supply, while also mitigating cross‑strait tensions.
Despite higher operating costs in the U.S., executives maintain that proximity to major chip designers justifies the expense. Local fabs also benefit from government subsidies and streamlined logistics for domestic tech firms.
In 2025, foreign shareholders have offloaded more than \$8.6 billion of TSMC stock, contributing to a roughly 20% decline in share price despite strong earnings. The sell‑off reflects broader risk aversion amid U.S.‑China tensions rather than company‑specific weakness.
Some institutional investors cite valuation concerns, arguing that geopolitical uncertainties warrant a discount on Taiwanese equities. Still, others view the dip as a buying opportunity, betting on the long‑term AI growth story.
Potential Wafer Price Hikes to Offset Cost Pressures
To counter rising production costs and potential tariff burdens, TSMC is considering wafer price increases of up to 15% for advanced nodes. Such hikes are seen as necessary to preserve gross margins amid U.S. capacity expansions.
While end customers may balk at higher chip prices, the strategic rationale is clear: sharing cost burdens enables continued investment in leading‑edge technology. Market players will watch closely to gauge the elasticity of demand.
North America now accounts for 77% of TSMC’s sales, while China’s revenue share has fallen to just 7% under tighter U.S. export controls. The shift underscores the impact of U.S. policy on global sales patterns.
TSMC has ramped up shipments to cloud‑service providers and chip designers in Silicon Valley, filling the gap left by restricted Chinese demand. However, the concentrated exposure to one region carries its own strategic risks.
Heavy Capex Plans Support Roadmaps but Pressure Cash Flows
TSMC’s capital expenditure of \$38–\$42 billion for 2025 will fund its most ambitious technology roadmap yet, including the rollout of 2 nm and future nodes. These investments are crucial to maintaining process leadership.
Yet the hefty capex also pressures near‑term free cash flow, raising questions about dividend sustainability and share‑buyback programs. Investors will balance the need for growth against immediate returns. As TSMC scales its U.S. fabs, gross margins may compress due to higher labor and construction costs compared to Taiwan. Supply‑chain adjustments and depreciation expenses from new builds will also weigh on profitability. Longer term, management expects margins to recover once facilities achieve high utilization. Until then, the company must navigate a trade‑off between global diversification and financial efficiency.
Ongoing geopolitical friction over Taiwan has injected a risk premium into TSMC’s stock, widening valuation gaps with global peers. Analysts note that any military flare‑up or aggressive tariffs could trigger sharp share volatility. This uncertainty has led some investors to apply steeper discount rates when valuing TSMC, despite its technological supremacy. The stock’s forward multiples now trade at a relative discount to other major chipmakers.
Threat of Reinstated 32% U.S. Tariff on Taiwan
The spectre of a reinstated 32% U.S. tariff on Taiwanese semiconductors remains a potential downside shock for TSMC’s business model. Though recent talks eased immediate fears, no formal guarantees have been made. A sudden tariff imposition would upend pricing strategies and could prompt customers to seek alternative suppliers. TSMC’s U.S. fabs offer some insulation, but the majority of its advanced production still occurs in Taiwan.
Samsung, SK Hynix, and emerging Chinese foundries are accelerating capacity builds to capture market share should TSMC face disruptions. These rivals are expanding their own AI‑capable nodes and advanced packaging services. In particular, Chinese fabs aim to close the technology gap under government support, while Samsung leverages its own EUV‑based processes. The looming capacity surge may intensify pricing competition.
Persistent investments by major cloud providers in AI infrastructure are expected to smooth out cyclical downturns in chip demand. Hyperscalers view semiconductors as strategic assets, placing multi‑year orders even amid economic uncertainty. This steady commitment provides TSMC with a revenue floor during broader market pullbacks. As data‑centre builds continue, the foundry can rely on robust baseline volumes for its leading‑edge nodes.
TSMC’s dual strategy of leveraging explosive AI demand while hedging trade risks with U.S. investments underscores the intricate balance the company must maintain. How effectively it navigates price adjustments, geopolitical hazards, and growing competition will shape the semiconductor landscape for years to come.
(Source:www.businesstimes.com.sg)
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