Taiwan Semi Shines in Q4 With Record Profits, Strong Outlook for AI-Driven Growth

Taiwan Semiconductor Manufacturing Company (TSMC), the world's largest contract chipmaker, delivered robust fourth-quarter earnings, fueled by surging demand for advanced chips used in artificial intelligence (AI) applications. The company posted record quarterly profit and provided a strong revenue outlook, highlighting its critical role in the global AI supply chain despite rising geopolitical challenges.

Q4 Financial Performance: Beating Expectations

TSMC reported net income of NT$374.7 billion ($11.4 billion) for Q4, marking a 57% year-over-year increase and aligning with analyst estimates. Revenue climbed 39% to $26.88 billion, exceeding the FactSet consensus of $26.24 billion. Earnings per share came in at $2.24, slightly above the expected $2.20. The record profit and revenue underscore TSMC’s ability to capitalize on booming AI chip demand and its dominance in advanced semiconductor manufacturing.

Margins and Net Income Highlights

The chipmaker’s gross margins were robust, supported by its industry-leading 3-nanometer and 5-nanometer chip technologies, which accounted for 26% and 34% of wafer revenue, respectively. Margins remain under pressure due to the higher costs associated with new fabrication plants in the U.S. and Japan. Despite these challenges, TSMC’s profitability highlights its operational efficiency and strategic focus on cutting-edge technology.

Segment Growth and Key Drivers

Advanced nodes (7-nanometer and smaller) contributed 74% of wafer revenue, with AI-related demand acting as a primary growth driver. Shipments of 3-nanometer chips saw rapid adoption, supported by key customers such as Apple, Nvidia, and AMD. AI-related sales are expected to double in 2025, reaffirming the strength of this burgeoning segment. TSMC’s strategic investments in advanced manufacturing capabilities continue to secure its leadership position.

CapEx Guidance and Industry Implications

TSMC announced a 2025 capital expenditure (CapEx) budget of $38 billion to $42 billion, a significant increase from the sub-$30 billion figure in 2024. This investment underscores its commitment to expanding capacity for AI chips and other advanced technologies. The guidance also sent ripples through the semiconductor equipment sector, lifting shares of companies such as ASML, Applied Materials, and Lam Research.

Geopolitical Challenges: Export Curbs

While TSMC benefits from its technological edge, the company faces growing risks from geopolitical tensions, particularly U.S. restrictions on chip exports to China. The U.S. recently tightened controls on memory chips critical for AI, forcing TSMC to implement compliance measures that could increase costs and complicate client relationships. Although China now accounts for just 10% of TSMC’s revenue—down from 16% in mid-2024—further restrictions could still weigh on its long-term outlook.

Robust Outlook for 2025

For Q1 2025, TSMC projects revenue between $25 billion and $25.8 billion, representing a year-over-year growth of approximately 37% at the midpoint. This forecast exceeds Wall Street’s consensus estimate of $24.92 billion. The company also anticipates mid-20s percentage revenue growth for the full year, driven by sustained AI-related demand and resilient client orders across sectors.

Stock Performance and Market Reaction

Following the earnings release, TSMC shares surged over 4% in premarket trading, reaching $215.22. The stock has been a standout performer, with a 90% gain in its Taipei listing and a 103% increase in American Depositary Receipts over the past year. TSMC recently broke out of a technical “cup-with-handle” base, signaling bullish sentiment among investors. The positive CapEx guidance further buoyed sentiment in the broader semiconductor sector.

Conclusion: TSMC Remains a Market Leader

Despite geopolitical headwinds, TSMC’s record-setting Q4 performance and optimistic outlook reinforce its pivotal role in the semiconductor industry. With growing demand for AI chips, increased CapEx, and a diverse client base, TSMC is well-positioned to navigate challenges and sustain growth. However, the impact of export curbs and rising operational costs warrants close monitoring as the company charts its course in an increasingly complex global landscape.