TL;DR
TSMC will hold its Q2 earnings call on July 16; key highlights include AI/HPC demand, 2nm progress, and gross margin outlook.
· The company's Q1 revenue was $35.9 billion with a gross margin of 66.2%; Q2 guidance is revenue of $39.0 billion to $40.2 billion and a gross margin of 65.5% to 67.5%.
HPC accounted for 61% of Q1 revenue, and advanced nodes at 7nm and below represented 74% of wafer revenue; high-performance computing and advanced nodes remain the primary growth drivers.
TSMC expects its USD revenue to grow by more than 30% in 2026, with capital expenditures approaching the upper end of the $52 billion to $56 billion range.
AI orders remain strong, but ramp-up of 2nm, increased depreciation, overseas manufacturing costs, and customer order timing will impact whether high margins can be sustained.

TSMC will hold its second-quarter earnings call on July 16, 2026, at 14:00 Taiwan Time, with a quiet period from July 6 to July 15.

The highlights of this earnings call go beyond revenue growth. As the world’s largest semiconductor foundry, TSMC connects on one end with mobile chip customers like Apple and Qualcomm, and on the other end with demand for AI accelerators, cloud-designed chips, and high-performance computing. The Q2 earnings report will directly answer three questions: Are AI orders still strong, is the 2nm ramp-up proceeding smoothly, and how long can the gross margin nearing 66% be sustained?

Over the past year, AI demand has consistently boosted TSMC’s revenue, profit margins, and capital expenditures. The market now is more concerned about whether the high growth driven by AI/HPC can continue to translate into high gross margins.

Q2 earnings, first check if the gross margin can hold at high levels

TSMC has delivered a strong performance for Q1. The company reported quarterly revenue of $35.9 billion in U.S. dollars, with a gross margin of 66.2% and an operating profit margin of 58.1%. In New Taiwan Dollar terms, first-quarter revenue reached NT$1.134103 trillion, with net profit of NT$572.48 billion and EPS of NT$22.08; revenue increased by 35.1% year-over-year, and net profit rose by 58.3% year-over-year.

Q2 guidance remains at the high end of the range. TSMC expects Q2 dollar revenue of $39 billion to $40.2 billion, with a gross margin of 65.5% to 67.5%.

This means that on July 16, the market will be looking not only at whether revenue falls within guidance, but also at whether gross margin can continue to hold above 65%. TSMC’s current valuation and earnings expectations are based on several assumptions: strong demand for AI/HPC, tight supply of advanced processes, and high capacity utilization rates.

Monthly revenue signaled continued strong demand. TSMC's revenue for May 2026 was NT$416.975 billion, a 30.1% year-over-year increase; cumulative revenue for January to May reached NT$1.961804 trillion, up 30.0% year-over-year.

However, revenue growth does not equate to proportional profit growth. Initial expansion of advanced process nodes brings increased equipment investment, higher depreciation, and costs associated with yield ramp-up. Ultimately, market response will be determined by the actual gross margin in Q2 and management’s guidance on profit margins for the second half of the year.

Morgan Stanley expects TSMC's Q2 gross margin to reach 67.4%, at the high end of the company's guidance.

AI/HPC remains TSMC's strongest support

TSMC's strongest growth driver remains AI and high-performance computing. Management stated on the Q1 earnings call that demand related to AI is "extremely robust" and raised its 2026 USD revenue growth outlook to more than 30%.

The revenue structure further reinforces this assessment. In the first quarter of 2026, HPC accounted for 61% of TSMC’s revenue, and advanced nodes at 7nm and below represented 74% of wafer revenue. While this does not directly equate to AI revenue share, it clearly indicates that high-performance computing, advanced nodes, and high-end customer demand have become the core pillars of TSMC’s revenue structure.

Demand for AI chips is driving capacity growth in advanced packaging, with CoWoS and SoIC remaining TSMC’s key expansion priorities.

The impact of AI chips on TSMC comes not only from order volume but also from the value per chip. AI accelerators and cloud-developed chips typically have larger areas and higher manufacturing complexity, relying more heavily on advanced processes and advanced packaging. This increases order value and helps maintain tight capacity for high-end production.

As AI capital expenditures continue to expand, TSMC finds it easier to maintain capacity utilization and pricing power. This is also why the market views TSMC as a key performance validation point in the AI hardware supply chain.

However, TSMC typically does not individually confirm orders from specific customers such as Apple, NVIDIA, and Qualcomm in its earnings reports. Investors can only gauge actual demand strength through revenue composition, capital expenditures, monthly revenue figures, and management commentary. Therefore, statements during the July earnings call regarding AI/HPC demand, customer inventory levels, and order pacing for the second half of the year will be more significant than any single quarter’s data.

Capital expenditures are approaching the upper limit, which will also increase pressure on profit margins.

TSMC has directed its full-year 2026 capital expenditure toward the upper end of the $52 billion to $56 billion range. This move indicates that management is responding not to short-term order fluctuations, but to a long-term capacity gap driven by AI and HPC demand.

Higher capital expenditures help TSMC secure future orders but also lead to higher costs. Significant investments in advanced process production lines will gradually reflect in the income statement through depreciation of equipment and facilities. Building factories overseas in the U.S., Japan, Germany, and other locations can diversify geopolitical risks, but also increase operational costs, management complexity, and supply chain expenses.

Therefore, capital expenditures nearing the upper limit are a double-edged sword: when demand is strong, they represent TSMC’s continued expansion of its lead; when demand slows, they translate more quickly into gross margin pressure.

This is also why the market repeatedly questions gross margins. TSMC currently has no shortage of demand; the real point of divergence is whether these orders can continue to be fulfilled at high profitability.

2nm ramp-up, determining the profit elasticity of the next phase

Beyond Q2 results, 2nm is a more critical variable for TSMC in the coming years. Management previously stated that N2 has entered high-volume production in Q4 2025 and is undergoing multi-phase ramp-ups in Hsinchu and Kaohsiung, with demand driven by smartphones and HPC/AI.

For customers, 2nm defines the performance boundaries for the next generation of flagship smartphone chips, AI accelerators, and high-performance computing chips. For TSMC, 2nm determines the pricing, capacity allocation, and gross margin levels for advanced processes over the coming years.

The market is now less concerned about whether 2nm will enter mass production, and more focused on how quickly supply can be scaled after mass production begins, whether yields can improve as planned, and whether initial customer demand can cover the high capital investment.

If the 2nm ramp-up proceeds smoothly, TSMC can continue to control the supply of advanced processes during the AI demand peak and maintain its pricing power in high-end capacity. If yield, equipment delivery, or cost pressures exceed expectations, gross margin may be pressured even if revenue continues to grow.

TSMC expects N2/A16 capacity to ramp up rapidly between 2026 and 2028, with a CAGR of approximately 70%.

What to listen for on July 16

On July 16, this earnings call is about more than just whether TSMC can meet its Q2 guidance.

More critically, how management will describe second-half AI/HPC demand, advanced packaging capacity, 2nm ramp progress, capital expenditure plans, and gross margin outlook.

If TSMC continues to maintain its assessment of strong demand while holding its gross margin guidance within the range of 65.5% to 67.5%, market confidence in the AI hardware supply chain will remain supported. If management provides more cautious signals regarding customer orders, inventory, or cost pressures, investors will reassess how long the high growth in the AI supply chain can be sustained.

TSMC's current strength stems from demand for AI/HPC, scarcity of advanced processes, and high capital expenditures for expansion. The risks lie along the same chain: demand, pricing, yield, depreciation, and overseas execution—any one of these falling short could immediately challenge the nearly 66% gross margin.

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