Taiwan Semiconductor Manufacturing Company (TSMC) has reported fourth-quarter revenue and net income that exceeded estimates. The company's performance was primarily supported by demand for artificial intelligence (AI) chips and its advanced process technologies. TSMC also provided a revenue forecast for the current quarter and outlined its capital expenditure plans for 2026, while acknowledging potential industry challenges.
Fourth-Quarter Financial Performance
TSMC's fourth-quarter revenue reached NT$1.046 trillion, equivalent to approximately $33.73 billion, surpassing an average projection of NT$1.034 trillion. This represented a 20.5% increase compared to the same period in the previous year. Net income for the quarter was reported at NT$505.74 billion, exceeding the anticipated NT$478.37 billion, marking a 35% increase and establishing a new quarterly record. The company has now achieved year-over-year profit growth for eight consecutive quarters.
Drivers of Performance
The company's performance was largely attributed to sustained demand for its advanced process technologies, particularly those utilized in Artificial Intelligence (AI) applications.
- Artificial Intelligence (AI) and High-Performance Computing (HPC): TSMC, a manufacturer of advanced AI processors for companies such as Nvidia and AMD, reported that its high-performance computing division, which includes AI and 5G applications, accounted for 55% of total sales during the October-December quarter.
- Smartphone Segment: Demand from the smartphone sector contributed 32% of total sales. Sales of the iPhone 17 were noted as a contributing factor.
- Advanced Process Technologies: Chips measuring 7-nanometer or smaller constituted 77% of total wafer revenue in the fourth quarter. For the full year 2025, these advanced chips are projected to account for 74% of revenue, an increase from 69% in 2024. TSMC plans to expand its 2-nanometer offerings, with mass production having commenced last quarter.
Bloomberg Intelligence analyst Charles Shum indicated that demand for TSMC's leading-edge nodes, crucial for AI and Apple chips, counteracted the company's traditional seasonal lull, leading to sales surpassing guidance.
Outlook and Capital Expenditure
TSMC executives project revenue for the current quarter to range between $34.6 billion and $35.8 billion. This forecast represents an approximate 4% sequential increase and a 38% year-over-year rise at the midpoint. Chief Financial Officer Wendell Huang stated that the company expects continued strong demand for its leading-edge process technologies to support its business, noting increasing profit margins.
The company's capital expenditure for 2026 is projected to be between $52 billion and $56 billion, an increase from $40.9 billion in 2025. In 2025, the company had allocated $40 billion to $42 billion for expansion and upgrades, and had received rush orders as clients prepared for US tariffs.
Jake Lai, a senior analyst at Counterpoint Research, predicted 2026 to be a significant year for AI server demand. Lai anticipates TSMC will maintain strong performance in 2026 due to its ongoing 2-nanometer capacity expansion, new production, and continuous expansion of advanced packaging.
Market Response and Potential Challenges
Following TSMC's revenue report, shares of ASML Holding NV, a supplier of chipmaking machines to TSMC, rose by approximately 6%. TSMC's American Depositary Receipts (ADRs) also experienced a gain of about 1% in premarket US trading.
TSMC Chairman and CEO C.C. Wei identified global tariff policies as a potential risk factor for 2026. While TSMC is expanding globally with projects in Japan, Europe, and Arizona, the company has indicated that overseas plants might operate at diluted margins compared to those in Taiwan.
Concerns among investors include the possibility that projected data center capacity might exceed actual usage, as well as the interconnected nature of some data center investments involving OpenAI and various publicly traded technology companies. Additionally, Mr. Lai noted that chip demand for consumer electronics like smartphones and PCs could be affected by ongoing memory shortages and price increases. Mr. Wei acknowledged the memory shortage but emphasized the company's focus on high-end smartphones, which are less susceptible to memory price fluctuations.