Advanced AI Chip Demand Likely to Aid Taiwan Semiconductor's Q2 Sales

Core Insights - Taiwan Semiconductor Manufacturing Company Ltd. (TSM) is set to report its second-quarter 2025 earnings on July 17, with a strong focus on advanced semiconductor technologies and increasing demand for AI chips across various sectors, indicating potential robust financial results [1] Revenue Projections - TSM projects revenues between $28.4 billion and $29.2 billion for the second quarter, reflecting a year-over-year increase of 38.3% at the midpoint, while the Zacks Consensus Estimate stands at $30.04 billion, suggesting a year-over-year growth of 44.3% [2][10] Demand for Advanced Chips - The rising adoption of AI in cloud services, personal electronics, and data centers has significantly increased the demand for high-performance chips, benefiting TSM as the world's largest contract chipmaker, particularly due to its leadership in advanced chipmaking technologies like the 3-nm and 5-nm nodes [3][10] AI-Focused Product Demand - TSM has experienced strong demand for its AI-focused products, including Chip-on-Wafer-on-Substrate advanced packaging solutions, with demand consistently exceeding supply, highlighting the company's essential role in AI and high-performance computing applications [4] Margin Pressures - Rising operational costs from TSM's global expansion into Arizona, Japan, and Germany are expected to negatively impact gross margins by 2-3% annually over the next three to five years due to higher labor and utility costs and lower initial utilization rates [5] - Additionally, higher energy prices in Taiwan, following a 25% electricity hike in 2024, present further challenges, especially as advanced nodes require more power [6] Earnings Outlook - Despite the challenges, analysts remain optimistic about TSM's bottom-line growth, with the Zacks Consensus Estimate for second-quarter earnings revised upward by 5 cents to $2.37 per share, indicating a year-over-year growth of 60.1% [7]