TSMC Earnings: AI Drives Demand

Key Points

• TSMC reported strong revenue and earnings growth, although currency was a headwind.

• Demand for AI chips is booming, which is pushing up demand for TSMC's leading nodes.

• The company expects strong sequential growth in the third quarter.

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Here's our initial take on Taiwan Semiconductor Manufacturing's (NYSE: TSM) fiscal 2025 second-quarter financial report.

Key Metrics

TSMC Noted Strong Demand for Leading Nodes

TSMC, as it is better known, missed analyst expectations for revenue in the second quarter, but currency exchange rate fluctuations were mostly to blame. Revenue still soared 44% in U.S. dollars thanks to soaring demand for the company's most advanced 3nm and 5nm node semiconductor chips. TSMC's 3nm nodes accounted for 24% of total revenue, while the 5nm nodes accounted for 36% of revenue.

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High-performance computing, which includes AI-related chips, accounted for 60% of revenue, up from 52% in the second quarter of last year. HPC revenue rose by 14% from the first quarter as AI infrastructure spending ramps up around the world.

The ongoing shift toward TSMC's more advanced nodes benefited the company's profitability. Gross margin jumped more than 5 percentage points year over year to 58.6%, operating margin rose more than 7 percentage points to 49.6%, and net profit margin jumped nearly 6 percentage points to 42.7%. The company spent $9.63 billion on capital expenditures during the second quarter to support its growth, bringing the year-to-date total to $19.69 billion.

For the third quarter of fiscal 2025, TSMC expects to generate revenue between $31.8 billion and $33 billion, a gross margin between 55.5% and 57.5%, and an operating margin between 45.5% and 47.5%.

Immediate Market Reaction

Shares of TSMC were up around 4% by noon on Thursday. Strong revenue growth, thanks to soaring demand for AI chips, along with even stronger earnings growth, was enough to push up the stock.

What to Watch

TSMC has a stranglehold on the leading-node portion of the foundry market, making it the only game in town for AI chip designers like Nvidia (NASDAQ: NVDA) and Advanced Micro Devices (NASDAQ: AMD). With total planned AI infrastructure investments exploding, TSMC's advanced nodes will remain in high demand for the foreseeable future.

While AI is a tailwind, macroeconomic uncertainty could eventually hurt demand for other types of chips.

Helpful Resources

• Full earnings report
• Investor relations page
• Additional coverage

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Timothy Green has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.