TSMC Q1 Revenue Tops 1 Trillion for First Time, Net Profit May Rise 50%. Wall Street Warns: Margins May Have Peaked

TradingKey - Last Friday (April 10), TSMC (TSM) announced record quarterly revenue—consolidated revenue for Q1 of fiscal year 2026 reached TWD 1.134 trillion (approximately $35.6 billion), a year-on-year increase of about 35%, marking the first time quarterly revenue has surpassed the TWD 1 trillion threshold.

Other data has not yet been released; TSMC will announce its full Q1 earnings report this Thursday (April 16).

According to a consensus of 19 analysts compiled by the London Stock Exchange Group (LSEG), TSMC's net profit for the quarter is expected to reach TWD 542.6 billion (approximately $17.1 billion), potentially marking its fourth consecutive record-breaking quarter with a 50% increase in net profit.

Since the outbreak of war in the Middle East, concerns over delays in AI data center construction and declining chip demand have resurfaced in the mainstream, but TSMC's performance may reignite market confidence.

Driven by Price Hike Strategy, Revenue and Profit Poised to Hit Record Highs

According to Reuters, as long as the net profit announced for this quarter exceeds NT$505.7 billion, it will mean that quarterly net profit will once again set a record high, marking nine consecutive quarters of growth.

Regarding revenue, based on information disclosed by TSMC, results for this quarter exceeded the upper limit of the forecast announced in January. Calculated at the company's set exchange rate, revenue reached NT$1.1312 trillion, with the year-on-year growth rate significantly higher than the 20% recorded in the fourth quarter of 2025. Not only did Q1 revenue break historical records, but March revenue also reached an all-time monthly high, increasing 45% year-on-year to NT$415.191 billion (approximately $13 billion).

This was primarily driven by a pricing strategy that increased the cost of advanced processes by 5%–10% at the beginning of the year. As early as last September, TSMC announced that it would implement a four-year plan of consecutive price increases for advanced processes below 5nm starting in January 2026, highlighting the sustained strong demand for its AI and computing chips. Furthermore, the exchange rate trend of the US dollar against the New Taiwan dollar provided additional momentum for TSMC's revenue growth.

Focus on 2nm Mass Production: Can TSMC Secure Pricing Power for Advanced Processes?

This earnings call should focus on two areas of expectations. Bloomberg Intelligence analyst Charles Shum noted that, first, management's judgment on the demand outlook for Android smartphones and PCs is critical. Given current rising memory costs, could this trigger a new round of inventory adjustments? Furthermore, would factory operations and gross margins come under pressure in the second half of the year if the Middle East conflict causes potential disruptions to chemical supplies, such as helium, or energy?

Another focus point is whether management will raise the long-term gross margin target to above 58%, assuming the multi-year strong demand for AI chips continues.

Technically, the metrics to watch are the yield and ramp-up slope of the 2nm process, which is key for TSMC to pull ahead of other chip giants. This process entered mass production at the Hsinchu and Kaohsiung plants at the end of 2025. This earnings call should address its yield and ramp-up slope, as the maturity of mass production will determine the trajectory of TSMC's Average Selling Price (ASP) for 2026-2027.

Analysis suggests that if TSMC maintains a significant lead over competitors in 2nm technology, making it the longest-lifecycle process generation in the company's history, it would provide structural support for its long-term gross margin to hold steady above 60%.

Focus on Full-Year CapEx Plans; Macquarie Warns Profit Margins Have Peaked

Galen Zeng, Senior Research Manager for semiconductor research at IDC Asia/Pacific, noted that the market should monitor whether TSMC maintains or raises its 2026 capital expenditure plans, as this will reflect management's confidence in long-term AI demand.

In January, TSMC Chairman and CEO C.C. Wei stated that capacity was extremely tight and proposed that 2026 capital expenditure would increase by 37% from the previous year's record. Full-year capital expenditure is currently forecast at $52 billion to $56 billion. Analysts point out that as tech giants ramp up AI spending, TSMC may further raise its capital expenditure guidance this quarter.

Despite sound long-term fundamentals, Macquarie analysts stated in a research report that TSMC's near-term margins may have peaked in the first quarter as the company expands 3nm chip capacity and 2nm chips enter mass production. This is because the 2nm process typically involves extremely high depreciation expenses in the early stages of mass production, which could pressure first-quarter margins; meanwhile, persistent external cost pressures suggest that investors should avoid blind optimism.