To The Moon

$Taiwan Semiconductor Manufacturing(TSM)$ is expected to report a very strong Fiscal Q2 2025, largely driven by the continuing surge in demand for Artificial Intelligence (AI) related chips. The company is set to release its official Q2 earnings on Thursday, 17 July 2025.

Revenue: Analysts generally expect TSM to exceed its own guidance. The Zacks Consensus Estimate for revenue is approximately US$30.04 billion, which would represent a significant 44.3% increase year-over-year. Other sources and recent company reports suggest actual Q2 revenue could be even higher, potentially around NT933.8 billion (approx.US 31.9 billion), setting a new quarterly record.

Earnings Per Share (EPS): The Zacks Consensus Estimate for EPS is $2.37 per share. This implies a substantial 60.1% increase compared to the $1.48 reported in Q2 2024. The "Most Accurate Estimate" from Zacks is even higher at $2.45 per share, suggesting a strong likelihood of an earnings beat. LSEG SmartEstimate projects a net profit of NT$377.4 billion (approx. US$12.9 billion), a 52% increase YoY.

TSMC Fiscal Q1 2025 Earnings Summary

TSMC reported a strong Fiscal Q1 2025, demonstrating its continued leadership in advanced process technologies and robust demand from the AI sector.

Revenue: NT839.25 billion (approximately US25.53 billion), a significant 41.6% year-over-year increase, though a slight 5.1% sequential decrease due to smartphone seasonality. This annual growth was the fastest since 2022.

Net Profit: NT 361.6 billion (approximately US11.12 billion), up 60.3% year-over-year, beating market expectations. Diluted EPS was NT13.94(US2.12 per ADR unit).

Gross Profit Margin: 58.8%, slightly lower than Q4 2024 (59%) but still exceeding market expectations. The slight decline was attributed to initial yield optimization costs for the new 2nm process and increased overseas factory operating expenses, particularly from the Arizona fab.

Operating Profit Margin: 48.5%.

Technology Contribution: 3nm process accounted for 22% of wafer sales revenue. 5nm accounted for 36%. 7nm accounted for 15%. Advanced technologies (7nm and below) collectively contributed 73% of total wafer revenue, up from 67% in Q4 2024, highlighting TSMC's competitive edge in high-end chips.

Platform Contribution: High-Performance Computing (HPC) increased 7% quarter-over-quarter, accounting for 59% of revenue, largely driven by AI accelerator orders from major customers like NVIDIA and AMD.

Smartphone revenue decreased 22% to account for 28%. IoT decreased 9% to 5%. Automotive increased 14% to 5%.

AI Demand: AI chip demand was a major highlight, with HPC-related revenue increasing over 70% year-over-year. TSMC expects AI accelerator chip sales to double year-over-year in 2025 and achieve a compound annual growth rate (CAGR) of 45% from 2024 to 2029.

Capital Expenditure (CapEx): Q1 CapEx totaled US10.06 billion. TSMC reiterated its full−year 2025 capital budget guidance of US 38 billion to US$42 billion, with approximately 70% allocated to advanced process technologies and 10-20% for advanced packaging.

Q2 2025 Guidance: TSMC projected Q2 2025 revenue to be between US28.4 billion and US 29.2 billion, representing a 13% sequential increase or a 38% year-over-year increase at the midpoint. Gross margin is expected to be between 57% and 59%, and operating margin between 47% and 49%.

Factors and Metrics for TSM Fiscal Q2 2025 Earnings

Investors should closely monitor the following factors and metrics for TSMC's Q2 2025 earnings release (expected around July 17, 2025):

Advanced Node Progress (3nm and 5nm/2nm): Utilization Rates and Yields: Look for commentary on the utilization rates and yield improvements for 3nm and 5nm nodes, as these directly impact profitability. Any updates on the 2nm process development and initial production will also be crucial.

Revenue Contribution from Advanced Technologies: Continued growth in the percentage of revenue from 7nm and more advanced technologies is a key indicator of TSMC's technological leadership and pricing power.

AI-Related Demand and Capacity:

AI Revenue Growth: How closely does actual AI-related revenue align with the forecasted doubling in 2025?

CoWoS Packaging Capacity: Updates on the expansion of CoWoS (Chip-on-Wafer-on-Substrate) advanced packaging capacity are critical, as this has been a bottleneck for AI chip shipments. TSMC aims to double this capacity by the end of 2025.

Customer AI Orders: Specific details or insights on new or sustained orders from key AI customers (NVIDIA, $Advanced Micro Devices(AMD)$ , cloud computing providers) will be important.

Overall Revenue Guidance and Outlook:

Fulfillment of Q2 Guidance: Whether TSMC meets or exceeds its Q2 revenue guidance of US 28.4 billion to US 29.2 billion. Recent monthly revenue reports (e.g., May revenue up nearly 40% YoY) suggest they might exceed.

Full-Year 2025 Outlook: Any revisions to the full-year revenue growth projection (mid-20s percent in USD terms) will be significant.

Industry Recovery Beyond AI: Commentary on the recovery of other end-market segments (smartphones, PCs, IoT, automotive) will provide a broader picture of demand.

Profitability Margins (Gross and Operating):

Gross Margin: How the gross margin performs, especially considering the ongoing dilution impact from new overseas fabs (Arizona, Japan, Germany) and potential electricity price increases in Taiwan. TSMC anticipates a 2-3% margin dilution for the full year 2025 from overseas fabs.

Pricing Power: Any signals regarding TSMC's ability to maintain or increase prices for its advanced nodes, particularly for AI chips, to offset rising costs. Reports suggest potential 30% premiums for Arizona-made chips.

Capital Expenditure (CapEx) and Global Expansion:

CapEx Allocation: Details on how the substantial 2025 CapEx budget (US$38-42 billion) is being deployed across different technologies and geographies.

Overseas Fab Progress: Updates on the construction and ramp-up of fabs in Arizona, Japan, and Germany, and their impact on operational costs and future capacity.

Geopolitical Landscape and US-China Tensions:

Tariff Impacts: Any specific commentary on the potential impact of new U.S. tariff policies or ongoing U.S.-China tech tensions on end-market demand or TSMC's supply chain. While TSMC has stated it hasn't seen changes in customer behavior, this remains a significant external risk.

Supply Chain Resilience: How TSMC is strengthening its supply chain to mitigate geopolitical risks and ensure consistent production.

Inventory Levels: While less direct for TSMC as a foundry, general commentary on inventory levels across the semiconductor industry (especially for end-products like PCs and smartphones) can indicate broader market health and future order trends.

Taiwan Semiconductor Manufacturing (TSM) Price Target

Based on 17 analysts from Tiger Brokers offering 12 month price targets for TSMC in the last 3 months. The average price target is $234.62 with a high forecast of $270.00 and a low forecast of $119.37. The average price target represents a -0.98%% change from the last price of $236.95.

Simulating TSM’s Barbell Sleeve Shift Under Different Macro Outcomes

The "barbell strategy" in investing generally refers to holding a portfolio with extreme positions (e.g., very safe assets and very risky/speculative assets), while avoiding the middle ground. For a company like TSMC, we can adapt this concept to think about its "barbell sleeve" as its strategic focus and resource allocation under varying macro conditions. The two "extremes" for TSMC are cutting-edge advanced technology manufacturing (high-risk, high-reward, high-investment) and established, mature node manufacturing/diversified applications (more stable, lower-risk, consistent demand).

Here is how TSMC's "barbell sleeve" might shift under different macro outcomes:

Scenario 1: Strong Global Economic Growth & Booming AI (Current Outlook)

Advanced Technology Sleeve (Aggressive/High-Reward): This end of the barbell would be significantly weighted.

Focus: Heavy investment in R&D and CapEx for 2nm, 1.4nm, and even sub-1nm processes. Rapid expansion of CoWoS and other advanced packaging capacity.

Resource Allocation: Majority of CapEx (70%+) goes to advanced nodes. Prioritization of talent and resources to push technological frontiers.

Customer Profile: Intense focus on servicing leading AI and HPC innovators (NVIDIA, AMD, hyperscalers) and high-end smartphone clients.

Market Share: TSMC would aggressively target increasing its lead in advanced nodes, potentially raising prices due to unmatched technological advantage and high demand.

Risk Tolerance: Higher tolerance for initial yield challenges and CapEx intensity, as the long-term payoff from AI dominance is substantial.

Mature/Diversified Sleeve (Conservative/Stable): Still present, but relatively smaller in proportion.

Focus: Efficiently running existing mature node fabs (e.g., 28nm, 40nm) to generate consistent, albeit lower-margin, revenue.

Resource Allocation: Maintain sufficient capacity for automotive, IoT, and industrial applications. Optimize existing fabs for cost-efficiency.

Customer Profile: Serving a broader range of clients with stable, predictable demand.

Market Share: Maintain strong presence but less aggressive expansion in these areas compared to advanced nodes.

Scenario 2: Global Economic Slowdown / Recession

Advanced Technology Sleeve (Aggressive/High-Reward - but with adjustments): This sleeve would still be important, but investment pace might be scrutinized.

Focus: Investment in leading-edge nodes might continue, especially for AI, as AI demand has shown resilience even in economic downturns. However, the pace of expansion might be re-evaluated.

Resource Allocation: CapEx might be slightly reduced or re-prioritized to focus on the most critical advanced nodes. Greater emphasis on yield optimization and cost control for new fabs.

Customer Profile: AI and HPC clients remain key, but potential for reduced orders from consumer electronics (smartphones, PCs) could shift the mix.

Market Share: Still aim to maintain leadership, but potentially more competition for orders if overall demand softens.

Risk Tolerance: Increased scrutiny on the return on investment for large capital outlays.

Mature/Diversified Sleeve (Conservative/Stable - becomes more critical): This end of the barbell would become more prominent for stability.

Focus: Emphasize stable, recurring revenue from less cyclical segments like automotive and industrial. Potentially increase focus on specialty technologies.

Resource Allocation: Maintain stable operations and potentially explore incremental efficiencies in mature fabs to bolster overall profitability.

Customer Profile: Focus on strengthening relationships with long-term clients in stable sectors.

Market Share: Defend market share in these segments more actively.

Risk Tolerance: Lower risk tolerance, focusing on cash flow generation from these reliable segments.

Scenario 3: Heightened US-China Tech Tensions / Geopolitical Fragmentation

Advanced Technology Sleeve (Aggressive/High-Reward - geographically diversified): This sleeve would shift its geographic focus.

Focus: Accelerated diversification of manufacturing footprint beyond Taiwan (e.g., Arizona, Japan, Germany). This involves significant CapEx in new regions.

Resource Allocation: Increased spending on overseas fabs, even if it initially impacts gross margins (as seen with Arizona). Emphasis on building regional supply chains.

Customer Profile: Maintaining relationships with all global customers, but possibly with distinct supply chains for different regions based on regulatory requirements.

Market Share: Aim to maintain global dominance by being a reliable partner in multiple regions, despite potential higher costs.

Risk Tolerance: Higher tolerance for geopolitical risks, reflected in strategic investments to build resilience and redundancy.

Mature/Diversified Sleeve (Conservative/Stable - localized supply chains): This sleeve would also see a shift towards regionalization.

Focus: Potentially building out more regional mature node capacity to serve local markets and reduce dependence on cross-border supply chains for less advanced chips.

Resource Allocation: Strategic investments in specific regions to meet localized demand for various applications.

Customer Profile: Serving regional customers with a focus on localized production.

Market Share: May accept some fragmentation of market share in certain segments to ensure operational continuity in a fractured geopolitical landscape.

Technical Analysis - Exponential Moving Average (EMA)

TSM continued to show strength especially with fellow semiconductor, $NVIDIA(NVDA)$ also making an upside movement, TSM momentum is growing strong positively and we are seeing the bulls in control.

Their attempt to make daily uptrend continuation seem to work, and we are seeing the bulls on track to create a recent new highs. But we need to be aware of the on-going tariffs and also effect from CPI.

So TSM earnings need to surprise and provide a stronger growth on its AI revenue.

Summary

Analysts are highly optimistic about TSMC's Q2 2025 performance, expecting the company to leverage its unparalleled technological leadership and the surging AI demand to deliver record-breaking revenue and strong profit growth.

TSMC's "barbell sleeve" will continue to feature significant investment in leading-edge technology due to the "insatiable" demand for AI chips. However, the exact balance and operational emphasis within that barbell will be influenced by global economic conditions, the pace of AI adoption, and the evolving geopolitical landscape, particularly US-China tech tensions, which necessitate strategic diversification of its manufacturing base.

Appreciate if you could share your thoughts in the comment section whether you think TSM could provide an earnings surprise with stronger growth seen from AI.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.