TSMC Releases Explosive Earnings: Profits Surge 35%, Advanced Chips Below 7nm Contribute Over 70% of Revenue

 

On Thursday afternoon, the world's largest chip foundry manufacturer, TSMC, released its Q4 earnings report.

 

The report shows that driven by strong demand for AI chips, TSMC's Q4 profit grew 35%, exceeding expectations and hitting a new high — marking the company's eighth consecutive quarter of year-over-year profit growth.

 

TSMC expects 2026 capital expenditure of $52 billion to $56 billion, compared to a total of $40.9 billion in 2025.

TSMC Delivers Strong Earnings

Below is a comparison of the company's performance against LSEG SmartEstimates analyst expectations:

 

Revenue: NT$1.046 trillion, up 20.5% YoY and 5.7% QoQ; expected NT$1.034 trillion.

 

Net Profit: NT$505.74 billion, up 35.0% YoY and 11.8% QoQ; expected NT$478.37 billion .

 

Chips Below 7nm Contribute Over 70% of Revenue

 

By segment, the company's high-performance computing division (covering AI and 5G applications) contributed the vast majority of Q4 revenue.

 

By technology, TSMC stated that advanced chips at 7nm or smaller accounted for 77% of total wafer revenue in the quarter.

 

 

Specifically, 3nm process technology contributed 28% to wafer revenue in Q4, while 5nm and 7nm contributed 35% and 14%, respectively.

 

 

By platform, high-performance computing (HPC) and smartphones accounted for 55% and 32% of net revenue, respectively, while Internet of Things (IoT), automotive, data communication equipment (DCE), and others accounted for 5%, 5%, 1%, and 2%.

 

Quarter-over-quarter, revenue from HPC, smartphones, IoT, and others grew 4%, 11%, 3%, and 14%, respectively. Automotive and DCE declined 1% and 22% from Q3 2025.

 

Geographically, in the last quarter of the year, revenue from North American clients accounted for 74% of TSMC's total net revenue, while revenue from Asia-Pacific, China, Japan, and Europe, Middle East, Africa (EMEA) accounted for 9%, 9%, 4%, and 4% of total net revenue, respectively.

Increased Capital Expenditure Planned for Next Three Years

At the earnings conference, TSMC executives stated that capital expenditure will increase significantly over the next three years, with 2026 capex expected at $52 billion to $56 billion. TSMC's total 2025 capex was $40.9 billion.

 

TSMC also expects nearly 30% sales growth in USD terms for 2026:

 

"While we expect AI accelerators to be the largest contributor to incremental revenue growth, our overall revenue growth in the coming years will be driven collectively by all growth platforms, including smartphones, HPC, IoT, and automotive."

 

"Demand for AI remains very strong, driving total chip demand across the server industry," said Counterpoint Research Senior Analyst Jake Lai, predicting 2026 will be another "explosive year" for AI server demand.

 

"With TSMC's ongoing 2nm capacity expansion and new production lines contributing to revenue, along with continued advanced packaging growth... TSMC is expected to maintain strong performance in 2026," Lai said.

 

However, he added that chip demand related to consumer electronics like smartphones and PCs may be impacted by current memory shortages and price hikes.