TSMC 1Q26: AI Demand Remains Robust; Growth Trajectory Unchanged

1Q26 Results

• Revenue: US$35.9bn (+40.6% YoY / +6.4% QoQ), slightly exceeding previous guidance.

• EPS: NT$22.08 for the quarter.

• Gross Margin (GPM): Significant expansion to 66.2% (+390bps QoQ), 120bps above the high end of guidance. This was driven by higher capacity utilization, cost control, and what we believe includes expedite fees paid by customers.

• Revenue Mix: Advanced nodes (7nm and below) accounted for 74% of wafer revenue. HPC revenue grew 20% QoQ, representing 61% of total revenue (vs. 55% in 4Q25). Smartphone revenue declined 11% QoQ due to seasonality, contributing 26% of revenue.

2Q26 and Full Year Guidance

• 2Q26 Guidance: Revenue is projected between US$39.0bn and US$40.2bn. At the midpoint, this represents +10% QoQ and +32% YoY growth, outperforming the market expectation of mid-to-high single-digit QoQ growth.

• 2Q26 Margin Guidance: GPM is expected to be between 65.5% and 67.5%, exceeding the market consensus of 65% and aligning with buy-side expectations of 66-67%.

• Full Year Revenue Revision: Driven by exceptionally strong AI chip demand—specifically the massive compute requirements from the transition to Agentic AI—TSMC has upwardly revised its 2026 full-year USD revenue growth guidance to >30% YoY.

Capex

To meet AI and HPC demand, TSMC now expects 2026 Capex to land at the high end of the US$52–$56bn range. Management noted that revenue growth has outpaced Capex growth over the past three years and expects this trend to persist in the coming years.