The Showdown TSMC Q4 Earns in Light of AI and Next-Gen
TSMC's filings for the fourth quarter of 2025 still leave us just mildly impressed in terms of the headline figures, which actually tell only half the story. The company earned consolidated revenues of NT$1,046.09 billion, along with a net profit of NT$505.74 billion, showing considerable growth on a year-on-year basis. The deeper insight into the reports shows the key drivers of this successful run a commanding lead in advanced process technology and overwhelming demand from the high-performance computing (HPC) market.
The Engine Room 3nm and 5nm Technologies are King
The manufacturing prowess of TSMC stands at the very heart of its strength. For the fourth quarter, advanced technologies (defined as 7nm and below) accounted for a staggering 77% of total wafer revenue. The breakdown is even more telling:
- 5-nanometer technology was the largest contributor at 35% of revenue.
- 3-nanometer technology had its contribution rise sharply to 28% of revenue.
- 7-nanometer technology still accounted for a significant portion at 14%.
The data evidence that TSMC's gigantic investments in leading-edge nodes are bearing fruits. The world goes with chipset technologies for AI accelerators to the flagship products for smartphones on these processes, and TSMC is the only and very important supplier.
High-Performance Computing (HPC) Leads the Charge
The actual end market for those advanced chips is apparent High-Performance Computing (HPC) is the largest of the platforms by revenue, accounting for 55% of the total. This segment, including data center CPUs and AI GPUs, is what we see as the tangible outcome of AI booming around the globe. The second-best revenue contributor was smartphones at 32%. Sequentially, HPC revenues increased by 4%, while the Smartphone segment got a stronger 11% uptick, thereby indicating continued strength across its core markets.
Stellar Profitability and a Confident Outlook
TSMC is not just growing revenue; it is being able to charge its customers even larger prices. The company recorded gross margins of 62.3% and operating margins of 54.0% and net profit margins at 48.3%. These are not just very good numbers; they show a wider leap both quarter-on-quarter and year-on-year, exhibiting TSMC's massive pricing power and operational efficiency.
Even greater evidence of management confidence comes in the outlook for the first quarter of 2026 the company expects revenues of US$34.6 billion to US$35.8 billion, with gross profit margins pegged to be even higher at 63%-65%. Management's outlook lends credence to their view that sustained demand for their technology remains at high margins.
The Good
The positive takeaways from this report are overwhelming and point to a company with a commanding market position.
- Astounding Profitability: A gross margin of 62.3% and an operating margin of 54.0% are exceptionally strong. Year-over-year, net income surged 35.0%. This demonstrates incredible pricing power and operational efficiency.
- Advanced Technology Dominance: The report shows that 3nm and 5nm process technologies accounted for 28% and 35% of wafer revenue, respectively. In total, advanced technologies (7nm and below) now make up 77% of revenue. This is TSMC's core strength; they are the undisputed leader where it matters most.
- The HPC Juggernaut: High-Performance Computing (HPC) was the largest revenue contributor by platform at 55%. This directly reflects the explosive demand from the AI and data center sectors. As the world's appetite for AI processing grows, TSMC is the primary beneficiary.
- Confident Future Outlook: Management’s guidance for Q1 2026 is strong, with revenue projected between US$34.6 and US$35.8 billion and gross margins expected to remain high at 63-65%. Their long-term outlook for a revenue CAGR approaching 25% signals deep confidence.
The Bad
While the report is overwhelmingly positive, a thorough analysis must consider potential risks and points of concern.
- Geographic Concentration: Revenue from customers in North America accounted for 74% of the total in Q4. While this reflects the current tech landscape, heavy reliance on a single geographic market presents a concentration risk should that region's demand slow down.
- The Staggering Cost of Leadership: Management's forecast for the 2026 capital budget is between US$52 billion and US$56 billion. This massive capital expenditure is necessary to maintain their technological lead, but it also represents a significant financial risk if future demand doesn't meet expectations or if there are delays in new process nodes.
- Minor Dip in Wafer Shipments: The Q4 report indicates that wafer shipments (in 12-inch equivalents) saw a sequential decrease of 3.0%. While revenue-per-wafer is clearly increasing due to the shift to more advanced, expensive nodes, a dip in overall volume is a metric to watch.
Our View
TSMC's Q4 2025 performance is nothing short of phenomenal. The company is masterfully executing its strategy and is perfectly positioned to capitalize on the generational shift toward AI and high-performance computing. Its technological moat in advanced nodes appears wider than ever, allowing for incredible profitability and a confident outlook.
However, the risks are as significant as the rewards. The immense cost of staying ahead and the persistent geopolitical tensions are undeniable pressures. For now, the bull case is exceptionally strong. TSMC is not just a participant in the AI boom; it is the fundamental engine powering it. The company remains the undisputed leader in the semiconductor industry, but its throne is an expensive one to maintain.
Financial Highlights for Q4 2025
| Metric | 4Q 2025 Result | Year-over-Year Change |
|---|---|---|
| Net Revenue (NT$ Billion) | 1,046.09 | +20.5% |
| Net Income (NT$ Million) | 505.74 | +35.0% |
| Diluted EPS (NT$) | 19.50 | +35.0% |
| Gross Margin | 62.3% | +3.3 ppt |
| Operating Margin | 54.0% | +5.0 ppt |
