Core Viewpoint - TSMC's Q2 performance is expected to exceed expectations, driven by strong demand for advanced process nodes, but the appreciation of the New Taiwan Dollar poses challenges for its profitability in the second half of the year [1][2]. Group 1: Q2 Performance - Morgan Stanley forecasts TSMC's Q2 revenue to reach $29.95 billion, a 17% quarter-over-quarter increase, significantly surpassing the company's guidance of 11-14% [2]. - The strong performance is attributed to three main factors: rapid ramp-up of N3 process, sustained strong performance of N5 series, and urgent orders from older process nodes [2]. - Despite the significant appreciation of the New Taiwan Dollar, Q2 gross margin is expected to remain at 57.9%, within the company's guidance range, due to higher capacity utilization and price increases from urgent orders [2] [1]. Group 2: Outlook for H2 - For the second half of the year, the fundamental drivers are viewed more positively compared to three months ago, leading to an upward revision of TSMC's 2025 revenue guidance to a high growth level of 29% (in USD) [3]. - However, the New Taiwan Dollar has appreciated by 11% since late April, which is expected to significantly impact gross margin and profitability in the second half [3]. - Morgan Stanley has adjusted its exchange rate model to 1 USD = 29 TWD, resulting in a 1% and 2% downward revision of TSMC's earnings forecasts for 2025 and 2026, respectively [3]. - The expected gross margin for the second half is projected to decline to around 56% due to the impact of currency appreciation [3]. - Quarterly forecasts indicate a 3-6% quarter-over-quarter revenue growth for Q3, while Q4 is expected to decline by 6% due to the fading effect of demand pull-forward and conservative expectations for non-AI demand [3]. Group 3: Advanced Process Demand - Despite currency challenges, TSMC's leadership in advanced processes and strong demand remain its core competitive advantages [4]. - The demand for N3 process is expected to maintain over 100% utilization in 2026 and 2027, potentially leading to supply shortages due to capacity constraints [7]. - The demand outlook for N2 process in 2026 is described as "quite strong," with major clients like Apple, AMD, Broadcom, Qualcomm, MediaTek, and Intel likely to adopt N2 technology [7]. - Apple is considering the full adoption of N2 processors in four new iPhone models in the second half of 2025, which could further boost N2 demand [7].