Taiwan Semiconductor Manufacturing Company delivered exceptional first-quarter results, with net income surging 58% year-over-year to NT$572.5 billion (S$23 billion), beating analyst expectations of approximately NT$542.4 billion. According to LSEG SmartEstimates, the company also exceeded revenue forecasts with $35 billion in quarterly revenue, ahead of the expected $34.8 billion. This marked the fourth consecutive quarter of record profits and the eighth straight period of double-digit growth for Asia's largest listed technology firm. The results demonstrate that the Middle East war in its first few weeks did not depress booming artificial intelligence investment, with TSMC's shares gaining about 30% this year and outperforming its major customers.
High-performance computing applications, including AI and 5G, accounted for 61% of total revenue in the first quarter, remaining the primary sales driver. As reported by LSEG SmartEstimates, advanced chips (7-nanometer or below) comprised 74% of wafer revenue, with 3-nanometer chips contributing 25% of the advanced chip segment. CEO C.C. Wei emphasized that "AI-related demand continues to be extremely robust" and noted rapid AI advances are driving increased computing needs and higher semiconductor demand, with strong customer signals supporting expectations for a multi-year AI growth cycle. The results underscore how AI investments are reshaping semiconductor economics, with TSMC's advanced process nodes running at maximum capacity and companies bidding for production slots months in advance.
Gross margin soared to 66.2%, up nearly 4 percentage points from the previous quarter's 62.3% and significantly exceeding the market estimate of 64.5%. The operating margin also rose to 58.1%, higher than the estimated 55.6% and the previous quarter's 54.0%. This marked a breakthrough improvement in profitability metrics, with advanced processes continuing to drive superior margins. The 5nm process leads at a 36% share while the 3nm process reaches 25%, together contributing over 60% of total revenue with growth momentum accelerating quarter-over-quarter. From Q1 2024 to Q1 2026, quarterly revenue from 7nm and below processes has nearly doubled, demonstrating the rapid transition toward more advanced manufacturing capabilities.
Major clients including Apple and Nvidia have driven robust demand, with Nvidia now representing TSMC's largest customer due to rising AI processor demand. The breadth of AI demand has expanded significantly, with Apple ramping production for AI-enabled devices, Microsoft and Amazon designing custom chips for cloud infrastructure, and even automotive companies ordering AI processors for next-generation vehicles. TSMC expects full-year 2026 revenue growth of more than 30% in U.S. dollar terms, slightly above its earlier outlook. For the second quarter, TSMC forecasts revenue between $39 billion and $40.2 billion, implying approximately 10% sequential growth. Despite supply chain risks from Middle East conflicts affecting energy supplies and critical materials like helium and hydrogen, executives expect no near-term disruption due to maintained safety inventories and multiple supplier sourcing.
To meet sustained demand, TSMC confirmed plans to add a new advanced fabrication plant in TSMC's Arizona facility is ramping production, supported by US CHIPS Act funding, but the Taiwan operations remain the company's technological crown jewel. The company reiterated that capital expenditure for 2026 will be at the upper end of its previously guided $52 billion to $56 billion range, as it accelerates expansion to meet AI chip demand that continues to outpace supply capacity through 2026. TSMC's 2-nanometer (N2) process has entered the mass production stage, while the company is increasing capital expenditures to expand 3-nanometer (N3) process capacity. Chairman C.C. Wei expressed full confidence in TSMC's technological position, noting that Intel is both a competitor and a customer, and emphasized that it takes three to five years for new chip factories to move from construction to capacity ramp-up.
