AsianFin -- With blockbuster quarterly earnings and rosy outlook, Taiwan Semiconductor Manufacturing Co. (TSMC) is sending upbeat signals of the longevity of stellar artificial intelligence (AI) demand.
Credit：Adobe Stock
TSMC on Thursday posted revenue of 989.92 billion New Taiwan dollars ($33.1 billion) for the third quarter with a year-over-year (YoY) increase of 30.3%, beating analysts’ estimated NT$977.46 according to LSEG. The net income also topped expectation, jumping 39% YoY to NT$452.3 billion. That shattered TSMC’s profit record, representing a 13.6% rise from the previous record set in the quarter ended in late June.
TSMC’s operating income for the September quarter rose 38.8% YoY to NT$500.69 billion, better than projection of NT$458.6 billion. Gross margin advanced 0.9 percentage points quarter-over-quarter (QoQ) to 59.5%, rather than an estimated 1.5 points sequential decline. Operating margin gained 1 points QoQ to 50.6%, improving for the second straight quarter.
TSMC booked capital expenditure in $9.7 billion, bringing the total Capex so far this year to $29.39 billion.
Looking forward the current quarter, TSMC projected revenue to be between $32.2 billion and $33.4 billion, suggesting a YoY increase range between around 20% and 24%. Gross margin is expected to be between 59% and 61%, with operating margin to be between 49% and 51%.
TSMC felt more confident for the full year. It raised annual revenue growth for the second time in three months. The chipmaker now expects a mid-30% surge in revenue for the year 2025, up from around 30% of growth rate it raised to in July.
TSMC management highlighted AI demand, a main drive for their guidance upgrade. “Our business in the third quarter was supported by strong demand for our leading-edge process technologies,” said TSMC Chief Financial Officer Wendell Huang. “Moving into fourth quarter 2025, we expect our business to be supported by continued strong demand for our leading-edge process technologies.”
“Recent developments in AI market continue to be very positive,” TSMC CEO C.C. Wei told analysts on an earnings call, adding that increasing adoption of AI models by consumers has led to more demand for compute, and by extension, semiconductor products.
Wei acknowledge headwinds including geopolitical uncertainty, but believed the AI demand can offset the loss of market due to the U.S. sanctions. “Conviction in the AI megatrend is strengthening,” he said. “The AI demand actually continues to be very strong, stronger than we thought three months ago.”
Wall Street analysts maintained their bullish on TSMC. "This isn't just a transient spike. TSMC's blowout quarter tells a clear story ... this is no longer a cyclical story, it's structural," said AvaTrade's chief market analyst Kate Leaman.
Morgan Stanley analyst Charlie Chan reiterated his overweight rating and hiked his price target from $51.88 to $55.15, citing the company’s strong results and positive AI semi outlook. “Advanced packaging revenue is close to 10% of TSMC’s total revenue. We think Moore’s Law 2.0 era is coming, which focuses more on energy efficiency and system performance improvement, and that requires both front-end and back-end foundry technology migration,” Chan wrote in a note.
Bank of America analyst Mike Yang reiterated his buy rating and lifted his price target from $52.27 to $58.80, saying TSMC has an “unrivalled position amid the megatrend of AI growth.” “In our view, TSMC’s position in such an area remains solid by ensuring system-level performance via front/back-end manufacturing, while it begins to evaluate with “customers’ customers” to better fulfill demand for advanced technology,” he continued.
