TSMC's Q4 Beat: The AI Boom Was Priced In, But Guidance Sets the Next Trap

TSMC's fourth-quarter results were a clear beat on the numbers. The company posted a record net profit of T$505.7 billion, a 35% year-over-year jump that handily cleared the LSEG SmartEstimate of T$478.4 billion. Revenue also came in strong at NT$1.046 trillion, topping the market's consensus of ~NT$1.034 trillion. This marks the eighth consecutive quarter of profit growth, underscoring the sustained power of its AI-driven demand.

Yet the stock's muted reaction tells the real story. For all the strength, the results were largely what the market had already priced in. The AI boom was not a surprise; it was the central thesis. The beat was significant, but it didn't materially shift the forward view. In expectation arbitrage terms, this was a classic "beat and hold" scenario. The news was good, but not good enough to overcome the high bar of anticipation that had already been set.

The setup now is clear. The record print confirms the story was working, but it doesn't change the narrative. The real game shifts to the guidance. With the AI demand story already baked into the stock, the next move will depend entirely on what TSMC says about the path ahead.

The AI Engine: Demand vs. Margin Reality

The numbers tell a clear story: AI demand is real and powerful. TSMC's Q4 results confirm the narrative, with advanced chips measuring 7 nanometers or smaller accounting for 77% of total wafer revenue. This technological edge drove a record net profit of NT$505.74 billion and a gross margin of 62.3%. In other words, the engine is firing on all cylinders.

But the quality of the beat is where the expectation gap begins. While the top-line strength was anticipated, the margin guidance for the coming quarter is a signal of caution. TSMC is guiding for a gross margin of 55.5% to 57.5% in Q1. That range is notably lower than the actual 59.5% gross margin from the previous quarter. Even more telling, the operating margin guidance of 45.5% to 47.5% is below the prior quarter's 50.6%.

This creates a classic "sandbagging" setup. The company is showing it can still achieve high profitability on strong demand, but it is simultaneously signaling that the easy money from the most advanced nodes may be winding down. The guidance reset suggests that while the AI boom is still driving wafer shipments, the premium pricing and cost advantages associated with the absolute cutting edge are being absorbed. For a market that had priced in a continuation of the current margin trajectory, this is a subtle but material reset of expectations. The demand story remains intact, but the margin reality is pulling back.

The Guidance Reset: The Real Catalyst for the Next Move

The real catalyst for the next move is now in focus. While the Q4 beat confirmed the AI story, the guidance for the coming quarter sets a new, lower bar. This reset is the market's next test of expectations.

The numbers are telling. TSMC is guiding for Q1 revenue of NT$31.8 to 33.0 billion. That range sits just below the previous quarter's actual revenue of NT$33.10 billion. More critically, the gross margin guidance of 55.5% to 57.5% is a clear step down from the 59.5% actual margin posted last quarter. This is a classic "sandbagging" move. The company is showing it can still deliver strong results, but it is simultaneously signaling that the easy money from the most advanced nodes is winding down. For a market that had priced in a continuation of the current margin trajectory, this is a subtle but material reset of expectations.

The key point is that the full-year 2026 guidance, to be provided in the earnings call, will be the true catalyst for resetting the market's consensus. The Q1 numbers are a signal, but the full-year view will define the path. Analysts are already looking ahead, with IDC forecasting a 25%–30% revenue growth for TSMC in 2026. The company's own guidance for the year, expected to be provided this week, will either confirm that optimistic trajectory or set a more cautious pace. This is where the expectation gap will widen or close.

Viewed another way, the muted reaction to the Q4 beat now makes perfect sense. The AI boom was priced in. The real game was always about what comes next. With the guidance reset, the market is shifting from the past beat to the forward-looking call. The stock's next move will hinge entirely on whether the full-year outlook meets, beats, or disappoints the new, lower expectations that have been set.