TSMC's Performance and AI Chip Demand

1. AI Demand Outlook and Growth

TSMC anticipates AI chip demand to increase at a compound annual growth rate (CAGR) of over 40% in the coming years, with actual demand potentially exceeding this forecast. This robust demand is a significant tailwind for TSMC, as it manufactures chips essential for nearly all AI technologies and is considered a pure-play AI stock. Deloitte estimates that $250 billion to $300 billion could be spent on AI data center chips this year, a substantial increase from $150 billion last year, which directly benefits TSMC. The overall semiconductor market is projected to grow by 26% in 2026, reaching $975 billion.

2. Production Capacity and Technological Advancement

TSMC's advanced manufacturing processes are operating at high utilization rates, with its 3nm process technology experiencing demand far exceeding supply. The company has temporarily halted new 3nm projects due to fully booked orders and is encouraging customers to consider 2nm process technology for future mass production. TSMC expects to commence volume production of its N2P (2-nanometer extension) and A16 technologies in 2026. The company's advanced chip packaging (CoWoS) capacity is projected to reach 125,000 to 130,000 wafers per month by the end of 2026, a significant increase from its current capacity, and this expanded capacity is reportedly fully booked.

3. Pricing Power and Revenue Growth

TSMC has strong pricing power and plans a price hike for its services in 2026. The company's revenue in the first 11 months of 2025 jumped by 33% year-over-year. For the entire year of 2025, TSMC's total revenue reached NT$3,809.05 billion, a 31.6% increase compared to 2024. LSEG SmartEstimate forecasts a 31% increase in TSMC's full-year sales to $120.4 billion.

4. Analyst Expectations and Market Sentiment

Analysts predict a 25% increase in TSMC's earnings in 2026. Goldman Sachs has raised its price target for TSMC, citing AI as a multi-year growth driver. JPMorgan identifies strong capital spending and earnings growth fueled by AI as a catalyst for stocks in 2026, with TSMC playing a central role in AI adoption. Despite a recent technical correction in its share price, TSMC's bullish market structure is expected to remain unchanged.

5. Strategic Partnerships and Competitive Landscape

TSMC is a vital component of the semiconductor supply chain, being the only contract manufacturer capable of producing smaller node chips at scale with few defects. It manufactures advanced AI processors for leading customers such as Nvidia. Nvidia is in discussions with TSMC to increase production of H200 AI chips to meet strong demand from Chinese technology companies, who have reportedly ordered over 2 million H200 chips for 2026. TSMC's share of the foundry market stood at an impressive 72% in the third quarter of 2025.

Summary

TSMC is exceptionally well-positioned to benefit from the accelerating AI megatrend, driven by increasing demand for AI chips, its leading-edge manufacturing capabilities, and strong pricing power. The company's significant investments in advanced technologies and capacity expansion, coupled with strong analyst forecasts and strategic partnerships, suggest continued robust growth and market leadership in the AI chip sector.