TSMC Q4 Revenue Rises 20.5% to TWD1.05T as AI Demand Fuels 48% Net Margin
TSMC Q4 revenue TWD1.05T (+20.5% YoY) and net income TWD506B (+40.6%), yielding a 48.4% net margin driven by advanced nodes and CoWoS packaging. Management guides 63-65% gross margins in early 2026 with 30%+ annual revenue growth through 2029 on AI demand and N2/A16 capacity ramp, supporting a 32x P/E.
1. TSMC Repriced as AI Infrastructure Monopoly
Taiwan Semiconductor Manufacturing Co. is now valued more like a quasi‐monopolistic provider of AI infrastructure than a cyclical foundry. At its current valuation, the company trades on approximately 32 times trailing earnings and 14.5 times price‐to‐sales, metrics that imply the market expects 20–25% annual revenue growth and net margins near 50% to be sustainable through the AI super-cycle. Investors are pricing in durable pricing power based on energy-efficiency economics (Joule-per-token), with wafer ASPs up roughly 20% year-over-year on advanced nodes despite allocations at N5, N3 and pre-allocations at N2 still tight. Management is guiding gross margins of 63–65% in early 2026 and a long-term target above 56%, underscoring confidence in value-capture pricing for high-end chips.
2. Robust Q4 Financial Performance
In the December 2025 quarter, TSMC reported revenue of TWD 1.05 trillion, up 20.5% year-on-year, while net income rose 40.6% to TWD 505.7 billion, lifting the net profit margin to 48.4%. Earnings per share reached TWD 19.50 (up 35%), and EBITDA climbed 23.5% to TWD 733.2 billion. Operating expenses increased by just 2.4% to TWD 88.8 billion, enabling incremental revenue to flow directly to the bottom line. Cash from operations grew 17% to TWD 725.5 billion, free cash flow remained strong at TWD 223.1 billion despite elevated capex, and the company ended the quarter with TWD 3.07 trillion in cash and short-term investments.
3. Advanced Node Capacity Expansion Driving Growth
Advanced process technologies now account for roughly 77% of TSMC’s revenue, with N3 contributing 28%, N5 35% and N7 14%. The company expects N3 wafer capacity to reach 180k wafers/month in 2026 and 250k wafers/month in 2027, driven by AI GPU and accelerator demand, including the Arizona Fab 2 ramp. N2 capacity is forecast to grow from 35k to 130–140k wafers/month in 2026 and to 200k wafers/month in 2027, supporting next-wave smartphone chips and AI ASICs. In advanced packaging, CoWoS volume is projected to rise from 75k wafers/month in 2025 to 120k in 2026 and 170k in 2027. Annual capex guidance of USD 52–56 billion underscores TSMC’s commitment to meeting robust AI-driven semiconductor demand.