Taiwan Semi (TSM): 3 Equations to Launch the Stock

Core Insights - Taiwan Semiconductor Manufacturing Company (TSMC) reported a revenue of $33.73 billion, exceeding consensus estimates by over $400 million, marking a 25.5% year-over-year increase and a 1.9% sequential rise [1] - The company achieved a gross profit of $16.3 billion, up 35% year-on-year, surpassing the consensus of approximately $15 billion [1] Financial Performance - TSMC's management provided guidance for Q126 revenue between $34.6 billion and $35.8 billion, significantly higher than the prior consensus of $32.5 billion [2] - Gross profit margin is expected to be between 63% and 65%, while operating profit margin is projected to be between 54% and 56% [2] - The gross margin for the latest quarter was reported at 62.3%, exceeding the guidance of 60% [3] Market Position and Demand - TSMC is experiencing unprecedented demand for its services, allowing it to leverage its capacity for higher revenues and profits [4] - Current demand for advanced nodes (3nm and 5nm) is approximately three times higher than TSMC's available capacity, indicating a significant backlog [9] - The company is focusing on maintaining strategic pricing rather than opportunistic pricing, reflecting its long-term relationship with customers [4] Capital Expenditure and Future Outlook - TSMC raised its 2026 capital expenditure projection to $52-$56 billion, up from previous expectations of $40.9 billion for 2025 [4] - The planned buildout in Arizona could total $165 billion, including six fabs and two advanced packaging sites, with new capacity expected to come online by 2028 or 2029 [6] - Management emphasized that aggressive investment is driven by sustained AI demand and tight supply conditions [6] Technological Advancements - TSMC's A16 technology roadmap is on track for volume production in the second half of 2026, featuring Super Power Rail technology for improved efficiency [13] - The A16 node is expected to deliver an 8-10% speed increase or a 15-20% power reduction compared to the N2P process [14] Customer Dynamics - Apple is projected to account for 22%-25% of TSMC's sales, while NVIDIA is expected to consume nearly 20% of capacity, with both companies representing almost half of TSMC's sales [15][16] - High-Performance Computing (HPC) has overtaken the smartphone segment as the primary revenue driver for TSMC, with Broadcom's share rising to 11%-15% of sales [17]