Taiwan Semiconductor Manufacturing Co (ADR) (NYSE:TSM) reported first quarter 2026 results that exceeded market expectations, driven by sustained demand for advanced chips used in artificial intelligence applications.
The company posted net income of NT$572.48 billion (approximately $18.16 billion), marking a 58% increase from a year earlier and surpassing analyst estimates that ranged between NT$540 billion and NT$543 billion.
Earnings per share came in at NT$22.08 ($0.70), above forecasts of $0.66.
Revenue for the quarter totaled NT$1.134 trillion (about $35.9 billion), slightly ahead of expectations and representing a 35.1% increase year-over-year. In US dollar terms, revenue rose 40.6% compared with the same period last year.
Profitability metrics also improved. Gross margin reached 66.2%, exceeding projections and marking a two-decade high. Operating margin was 58.1%, while net profit margin stood at 50.5%, reflecting strong pricing power and high factory utilization.
The company attributed its performance to robust demand for leading-edge semiconductor technologies, particularly in AI-related applications. Advanced process nodes, including 3-nanometer, 5-nanometer, and 7-nanometer technologies, accounted for 74% of total wafer revenue, with 3-nanometer chips alone contributing 25%.
“Our business in the first quarter was supported by strong demand for our leading-edge process technologies,” said Wendell Huang, TSMC’s chief financial officer.
Looking ahead, TSMC projected continued growth in the second quarter, forecasting revenue between $39 billion and $40.2 billion, with gross margins expected to remain elevated.
Analysts at Wedbush Securities described the results as a “beat across the board,” highlighting stronger-than-expected gross margins and profitability despite rising operating expenses.
The firm reiterated its ‘Outperform’ rating on TSMC and raised its price target to NT$2,400 from NT$2,200, above current levels of about NT$2,085, citing improved long-term growth expectations.
Wedbush noted that while a modest revenue beat had been anticipated based on monthly sales data, the magnitude of the margin expansion was a key surprise. The firm also pointed to TSMC’s second-quarter guidance, which came in slightly ahead of forecasts, with further sequential improvement in gross margins.
For the full year, Wedbush said TSMC’s updated outlook, now calling for more than 30% revenue growth, reflects stronger underlying demand trends, particularly in AI-related segments. The analysts added that they have raised their own revenue estimates, supported by expectations of a stronger first half and continued momentum in high-performance computing.
At the same time, the firm flagged potential headwinds later in the year, including costs associated with ramping 2-nanometer production, expansion of US-based fabrication capacity, and broader geopolitical risks.
Wedbush also highlighted TSMC’s increased capital expenditure outlook, toward the upper end of its previously guided $52 billion to $56 billion range, and planned expansion of 3-nanometer capacity as further evidence of sustained demand strength.
The firm said TSMC’s performance reflects ongoing momentum in AI chip demand, with positive implications for companies such as Nvidia and Broadcom. It also noted supportive trends for semiconductor equipment makers, referencing strong industry outlook signals, including from ASML.
In the smartphone segment, Wedbush characterized conditions as mixed but stable, noting that shipments grew about 10% year-over-year despite weaker demand in China. The firm added that supply chain checks in Asia suggest steady production plans for Apple devices through 2026.
“With another strong quarter behind TSMC, an even stronger Q2 forecast, and any competitive risk seemingly still years away (arguably the end of this decade at the earliest), we see no reason to shift our constructive view on the name,” Wedbush concluded.
Despite the strong Q1 report, TSMC’s US-listed shares traded down 2.5% on Thursday morning.