TSMC Earnings Highlight AI-Driven Growth, Reaffirm CapEx Amid Tariff Clouds

Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest contract chipmaker, posted another blowout quarter Thursday, reinforcing its status as a bellwether for the semiconductor sector. The company reported a 60% year-over-year jump in net profit for the first quarter and issued robust guidance for Q2, fueled by continued strength in AI-related demand. TSMC also reaffirmed its full-year CapEx forecast of $38–42 billion, an important signal of long-term confidence as the semiconductor industry navigates a landscape clouded by geopolitical risk and trade uncertainty. Shares were up 3.3% in premarket trading Thursday.

Q1 Results: Strong Beat Across the Board

For the March quarter, tsmc reported net income of NT$361.6 billion (US$11.12 billion), comfortably beating the consensus estimate of NT$346.8 billion. Revenue rose 41.6% year-over-year to NT$839.25 billion (US$25.53 billion), ahead of expectations, although down modestly from the previous quarter due to smartphone seasonality. Gross margin landed at 58.8% and operating margin came in at 48.5%, both slightly ahead of forecasts. EPS reached NT$13.94 (US$2.12 per ADR), marking a 60.4% annual increase.

Management noted that Q1 performance was driven by continued growth in high-performance computing and AI-related applications, which helped offset typical seasonal softness in smartphones. Advanced process technologies (7nm and below) accounted for 73% of wafer revenue, led by strong demand in the 3nm and 5nm nodes, which made up 22% and 36% of sales, respectively.

Q2 and FY25 Guidance: Momentum Building

Looking ahead, TSMC guided Q2 revenue between US$28.4 billion and US$29.2 billion, well above the US$26.92 billion Street estimate. Gross margin is projected to fall between 57% and 59%, and operating margin is forecasted at 47% to 49%, both consistent with its long-run targets. For the full year, the company continues to expect revenue growth “midway between 20% and 30%,” bolstered by rising demand for AI server chips, which are now expected to double in 2025.

The upbeat Q2 guide underscores the strength of secular demand drivers tied to artificial intelligence, high-performance computing, and 5G infrastructure. CFO Wendell Huang emphasized that while customer behavior remains stable, management remains “vigilant about end market risks” tied to tariffs and global economic headwinds.

CapEx Commitments Reaffirmed: A Key Confidence Signal

Perhaps the most consequential takeaway from the report was TSMC’s reaffirmation of its massive CapEx guidance. The company still expects to spend between US$38 billion and US$42 billion in 2025, with a focus on expanding its 2nm, 3nm, and 5nm capacity across Fabs 20, 21, and 22, as well as packaging and specialty technologies in Fabs 23 and 24. Importantly, TSMC reiterated that CapEx would be funded via internal cash flow and corporate bonds, reflecting a disciplined balance sheet and robust operating leverage.

Given the industry’s sensitivity to macro cycles and geopolitical risk, the decision to hold the line on CapEx is being read by analysts as a strong vote of confidence in the durability of AI-related demand and structural growth in silicon content. It also suggests that near-term tariff noise has not materially altered customer behavior or long-term planning assumptions.

Tariffs, Trade Risk, and the Trump Factor

Despite its strong quarter, TSMC remains in the crosshairs of ongoing U.S. trade tensions. The company acknowledged that tariff risks persist, and it is monitoring customer behavior closely. Trump’s recent comments—suggesting that TSMC could face up to 100% tariffs unless it relocates more production to the U.S.—added new uncertainty. While TSMC has pledged US$165 billion in U.S. investments and is building six fabs in Arizona, it remains unclear whether these efforts will shield it from potential penalties.

Adding to the complexity, the U.S. has recently tightened licensing requirements for exports of advanced AI chips to China, impacting companies like Nvidia and AMD—both major TSMC clients. While the company has yet to report a direct hit from these restrictions, investors will be watching for any signs of shifting order patterns.

Stock Reaction: A Relief Rally with a Tariff Overhang

TSMC’s ADRs climbed 3.3% premarket on the heels of the earnings beat, though the stock remains down 23% year-to-date amid broader chip sector volatility and escalating trade tensions. Thursday’s rally was fueled by the beat-and-raise quarter and the signal that CapEx, margins, and demand fundamentals remain intact. However, with Trump threatening more aggressive trade policies and supply chains increasingly politicized, investors remain cautious.

Wedbush analyst Matt Bryson, who rates the stock “Outperform” with a NT$1,300 price target, recently warned that “2025 growth could slow beyond initial projections” if U.S. policy constraints tighten further. For now, TSMC appears to be navigating the storm with precision, but market sensitivity to any trade-related headlines remains high.

Bottom Line

TSMC’s first-quarter results reaffirm its centrality in the AI boom and the broader semiconductor supply chain. With AI, HPC, and 3nm uptake firing on all cylinders, and CapEx plans intact, the company is leaning into its leadership position. But with political noise building and tariff threats lingering, execution will remain critical in preserving its valuation premium and strategic moat.