ZACKS·2026-01-15 19:31Core Insights - TSMC reported strong fourth-quarter earnings, with revenue of $33.73 billion, a 25.5% year-over-year increase, and earnings per share rising 35% [1][2] - The company raised its capital expenditure budget, indicating confidence in sustained demand for AI chips [2][11] - TSMC's results confirm the ongoing strength of the AI semiconductor cycle, particularly in advanced nodes where capacity is tight [3][11] Financial Performance - TSMC's gross margins expanded to 62.3%, reflecting robust profitability [1] - Earnings per share are projected to grow at an annualized rate of 33.4% over the next three to five years, with revenue expected to increase by 34.5% this year and 23.6% next year [9][10] Industry Implications - Upstream equipment suppliers like ASML and Lam Research are positioned to benefit from TSMC's increased capital spending [4][8] - Lam Research shares surged over 6% following TSMC's earnings release, with a projected annual profit growth of 18.1% [6] - ASML also saw a strong market reaction, with shares rising more than 6% and long-term earnings growth forecast at 22.2% [7] Investment Considerations - TSMC's valuation at approximately 25.7x forward earnings appears reasonable given its growth profile and the broader AI ecosystem [10] - Investors can choose between direct exposure to TSMC or leveraged exposure through ASML and Lam Research, both of which are integral to the AI semiconductor buildout [12]