TSMC’s second-quarter revenue rose 38.6%, ignoring currency moves, to $30.1bn - ahead of company guidance. The uplift was supported by strong demand for AI and high-performance computing, which increased its share of revenue from 52% to 60%.
Operating profit increased by 61.7% to $14.9bn, helped by operating expenses that grew at a slower pace than revenue.
Free cash flow over the first half was $15.5bn and there was net cash on the balance sheet of $58bn at the end of the period.
Third quarter revenue is expected to land between $31.8-33.0bn.
Currency = US dollar.
The shares were up 3.0% in pre-market trading.
Our view
Another quarter, another strong set of results from TSMC. Tariff concerns are still looming overhead but there’s not been any change in customer behaviour. That’s good news for investors but it’s still early days.
The company is the world’s leading semiconductor foundry. It doesn’t design its own microchips but manufactures and assembles integrated circuits for clients such as NVIDIA, ARM, and Apple. Microchips are among the most complex devices known to man, and they’re getting ever more intricate.
TSMC’s dominance is underpinned by technology leadership and manufacturing excellence, leaving it well-placed to benefit from major technological shifts. That’s feeding through to impressive growth numbers. Despite what’s going on with global trade, we see a long pathway ahead for AI-related demand, and TSMC is broadening its product and service offerings for designers of systems that can process data, solve problems, and make decisions.
The rise of connected devices and data-heavy activities like drug discovery, blockchain, and self-driving cars is boosting demand for high-performance computing (HPC) parts. This supports TSMC’s forecast of long-term revenue growth close to 20%. HPC already makes 60% TSMC’s revenue and is the area we are most excited about.
TSMC is well ahead of the pack in terms of capabilities and efficiency. But there are some well-funded players chasing the same prize. That means it can’t stand still in this incredibly fast-moving industry, with progress driving a new generation of chip technology every couple of years.
The geopolitical environment is also a factor that needs close monitoring. Tension between Taiwan and China is an ever-present threat, but the immediate focus is on tariffs. We see TSMC’s efforts to diversify its operations beyond Taiwan as a step in the right direction. But the near-term outlook on both direct tariffs for Taiwan and the impact on global economies is still unclear.
TSMC’s investment plans are well supported by a strong balance sheet and impressive cash flows. Capex guidance hasn’t moved despite the strong quarter as the business cycles from expansion to consolidation. This should be positive for returns assuming non-AI demand is able to stay steady.
TSMC stands out in the foundry space with a significant technological edge over competitors. The AI transition offers long-term growth, though cyclical non-AI demand is a little more uncertain. The White House’s more reasonable tariff approach has prompted a rebound in sentiment from April’s low point. We still see potential for further upside, but there are no guarantees.
Environmental, social and governance (ESG) risk
The semiconductor sector is medium-risk in terms of ESG. Overall, this risk is managed adequately in Europe and North America but has considerable room for improvement in the Asia-Pacific region. Its reliance on highly-specialised workers means labour relations is one of the key risk drivers. Other risks worth monitoring include resource use, business ethics, product governance, and carbon emissions.
According to Sustainalytics, TSMC’s management of material ESG issues is strong.
TSMC has a company-wide target to reach net zero by 2050, and plans to use 40% renewable energy for all fab operation sites by 2030. Its latest products promise to deliver substantial energy efficiencies for end users. TSMC incorporates water scarcity and flooding into its enterprise risk management, but its water intensity is well above the industry median, suggesting there is room for improvement. Skill shortages are an industry-wide issue, but TSMC has a strong commitment to talent development and staff retention has been moving in the right direction.
TSMC key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
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