Taiwan Semiconductor Manufacturing Company (TSMC) (TSM), the world’s leading semiconductor foundry, ended 2025 on a strong note, driven by growing demand for advanced nodes and AI accelerators. While the company will report its first-quarter earnings report on April 16, it provided a preview of preliminary first-quarter revenue growth of 35%, showing the strength of the current AI cycle. TSM shares are up 23% year to date (YTD) and 147% over the past 52 weeks, outperforming the broader market.
With massive capital spending, pressures on margins due to global expansion, and the rise of next-generation technologies, the first-quarter report will reveal whether TSM stock still has room to run.
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Valued at $1.6 trillion, TSMC is the world’s largest proprietary semiconductor foundry. Instead of designing its own chips, it makes chips designed by other companies. TSMC specializes in next-generation manufacturing nodes such as 3nm and 5nm, which are among the most advanced in the world. It is the leading supplier to technology titans such as Apple (AAPL), AMD (AMD), Nvidia (NVDA), Qualcomm (QCOM), and Broadcom (AVGO).
For the full year 2025, TSMC’s revenue increased 35.9% year-over-year (YoY) to $122 billion. Adjusted earnings per share (EPS) rose 46.4%, while gross margin expanded nearly 60%, driven by both strong demand and disciplined cost execution. High-performance computing (HPC) accounted for 58% of revenue and grew 48% year-over-year. Smartphones continued to contribute significantly at 29%, while IoT and automotive segments also recorded double-digit growth.
The explosive growth of AI is the driving force behind TSMC. Management highlighted that the company is not only seeing demand from direct customers but also from its customers. It now forecasts AI accelerator revenue to grow at a mid-to-high 50% compound annual growth rate through 2029. This layered demand highlights TSMC’s critical role in the AI ecosystem.
For the first quarter, the company reported preliminary first-quarter revenue of $35.71 billion, marking a strong 35% year-over-year increase and at the high end of its previously guided range of $34.6 billion to $35.8 billion. Notably, March alone generated a 45.2% increase in revenue year-over-year and 30.7% sequentially, indicating an acceleration in demand toward the close of the quarter. Overall, preliminary numbers suggest TSMC is entering 2026 with strong revenue momentum, highlighting the strength of AI-driven demand despite broader macroeconomic uncertainties.
For the full year, TSMC remains very optimistic, expecting the foundry 2.0 industry to grow 14% year-on-year. The company’s revenue could rise 30% over the year to $158 billion, in line with consensus estimates. However, the company also expects capital spending to increase to between $52 billion and $56 billion, up from $40.9 billion in 2025.
TSMC expects 70% to 80% of this will go into advanced process technologies, reflecting the company’s aggressive push to maintain its technology leadership. It has already begun high-volume production of its two-nanometer (N2) technology and intends to roll out upgrades such as N2P and the A16 node, which are expected to improve performance and efficiency.
Analysts covering TSMC also expect earnings to rise 38.3% in 2026 to $14.73 per share, followed by 22.6% in 2027 to $18.06 per share. TSM, trading at 24 times forward earnings, appears to be a reasonable AI stock to buy now.
TSMC is not just another semiconductor company. When it comes to advanced chip manufacturing, TSMC is years ahead of most competitors like Intel (INTC) and Samsung (SMSN.L.EB). This dominance gives TSMC pricing power, long-term contracts, and deep dependence on customers. The fact that no other manufacturer can completely replace it today provides TSMC with a competitive advantage, which is essential in this highly competitive and crowded AI space.
However, investors should not forget about the risks completely. Rising capital expenditures, margin dilution due to global expansion and the rising cost of advanced nodes could impact profitability in the near term. With revenue expected to grow close to 30% in 2026 and demand for AI showing no signs of slowing, TSMC appears well positioned for long-term growth. The stock is down 6.3% from its 52-week high of $390.20, making it a good opportunity to buy on the dip.
Overall on Wall Street, TSM stock has a consensus rating of “Strong Buy.” Of the 18 analysts covering the stock, 14 rate it a “Strong Buy”, two say it is a “Moderate Buy” and two rate it a “Hold.” Based on the average price target of $419.38, the stock has a 13% upside potential from current levels. Furthermore, its high price target of $520 implies a 40% upside potential over the next 12 months.
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On the date of publication, Sushree Mohanty had no (directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article are for informational purposes only. This article was originally published on Barchart.com
