Taiwan Semiconductor Manufacturing NYSE: TSM raised its 2026 capital spending plan and full-year revenue outlook as executives said demand for leading-edge chips tied to artificial intelligence remains “extremely robust,” even as some consumer and price-sensitive end markets face pressure.
On the company’s second-quarter 2026 earnings call, Chairman and CEO C.C. Wei said TSMC finished the quarter with revenue of $40.2 billion, at the high end of its guidance in U.S. dollar terms, driven by strong demand for leading-edge process technologies. Looking ahead, Wei said the company now expects full-year 2026 revenue growth to be “slightly above 40% year-over-year” in U.S. dollar terms.
“The AI megatrend continue to drive the need for more and more computation, which supports the robust demand for leading-edge silicon,” Wei said. He added that customers and their customers, mainly cloud service providers, continue to provide “very strong signal and positive outlook.”
TSMC Guides for Strong Third Quarter Growth
Senior Vice President and CFO Wendell Huang said TSMC expects third-quarter revenue between $44.6 billion and $45.8 billion. At the midpoint, that would represent a 12% sequential increase and a 37% year-over-year increase.
Based on an exchange rate assumption of $1 to TWD 32, the company guided for a third-quarter gross margin of 65% to 67% and an operating margin of 56% to 58%.
Second-quarter gross margin rose 150 basis points sequentially to 67.7%, slightly above guidance, Huang said. The increase was primarily due to cost improvement efforts and a slightly higher overall capacity utilization rate, partially offset by dilution from overseas fabs.
For the third quarter, Huang said gross margin is expected to decline to 66% at the midpoint, mainly because the steep ramp-up of 2-nanometer technology is expected to dilute gross margin by about 3 to 4 percentage points. That pressure is expected to be partly offset by strong demand for leading-edge technologies and continued cost improvement efforts.
HPC Leads Revenue Mix as 2-Nanometer Begins Contributing
TSMC’s high-performance computing platform increased 20% quarter-over-quarter and accounted for 66% of second-quarter revenue, Huang said. Smartphone revenue decreased 4% sequentially and represented 22% of revenue. IoT rose 4% to 5% of revenue, automotive increased 15% to 4%, and digital consumer electronics rose 5% to 1%.
By technology, 2-nanometer process technology contributed 3% of wafer revenue in the second quarter. The 3-nanometer, 5-nanometer and 7-nanometer nodes accounted for 30%, 33% and 11%, respectively. Advanced technologies, defined as 7 nanometers and below, represented 77% of wafer revenue.
Wei said third-quarter business will be supported by continued strong demand for leading-edge technologies, including the ramp of 2-nanometer production. However, he said consumer and price-sensitive end markets are being challenged by rising component prices and macroeconomic uncertainties, prompting the company to remain prudent in business planning.
Capital Budget Raised to $60 Billion to $64 Billion
TSMC raised its full-year 2026 capital budget to between $60 billion and $64 billion, citing continued strong structural demand from customers, including the emerging agentic AI market. Huang said a higher level of capital expenditures at TSMC is “always correlated to higher growth opportunities in the following years.”
Huang said about 70% to 80% of the 2026 capital budget will be allocated to advanced process technologies. About 10% will be spent on specialty technologies, and 10% to 20% will be directed toward advanced packaging, testing, mask making and other areas.
In the second quarter, TSMC generated about TWD 783 billion in cash from operations, spent TWD 496 billion in capital expenditures and distributed TWD 156 billion for third-quarter 2025 cash dividends. In U.S. dollar terms, second-quarter capital expenditures totaled $15.7 billion.
Huang also said TSMC remains committed to “a sustainable and steadily increased cash dividend per share.” He said shareholders received TWD 18 per share in 2025 and will receive TWD 24 per share in 2026, with the company expecting continued increases in 2027.
Arizona Expansion and Global Capacity Plans
Wei announced an additional $100 billion investment in Arizona to build several more logic wafer fabs for 2-nanometer and below technologies, as well as advanced packaging fabs, to support multi-year demand from leading U.S. customers. During the question-and-answer session, Wei said the investment would likely include “additional four more fabs,” combining front-end and back-end facilities, though he said the schedule would depend on market conditions and customer demand.
Wei also said TSMC is building 13 leading-edge and advanced packaging fabs in Taiwan over the next several years and will continue to invest in Taiwan. The company is also executing plans to add three additional 3-nanometer fabs: one in Taiwan, one in Arizona and one in Japan.
On capacity planning, Wei said TSMC collaborates with customers and customers’ customers to assess demand, while also using top-down and bottom-up internal planning. He said it takes more than five years to develop technology, prepare capacity and ramp production to high volume.
Asked about the gap between demand and supply, Wei declined to provide a specific number but said the gap is “very big.” He said he believes demand will remain very strong “all the way to probably 2029, 2030,” although he said he could not be certain whether there might be a dip in between.
Agentic AI, Packaging and Future Nodes
Wei said the emergence of agentic AI is leading to a “resurgence” in the role of CPUs in AI data centers, adding silicon demand beyond AI accelerators. He said this is positive for TSMC because CPU approaches including x86, Arm-based and RISC-V architectures are “almost all TSMC’s customers.”
On advanced packaging, Wei said TSMC’s packaging capacity is so tight that it is limiting customer growth. He said the company welcomes additional flexibility in the market if competitors can help customers package front-end wafers, because that could support TSMC’s front-end wafer business.
Wei also provided an update on A14 technology, describing it as TSMC’s second generation of nanosheet transistors. Compared with N2, he said A14 is expected to provide a 10% to 15% speed improvement at the same power, a 25% to 30% power improvement at the same speed and close to a 20% chip density gain. Pre-production is scheduled for 2027, with volume production planned for 2028. TSMC also introduced A13 and A12 as extensions of the A14 family, both scheduled for volume production in 2029.
For mature nodes, Wei said TSMC’s strategy has not changed. The company continues to focus on higher value-added and strategic segments, including CMOS image sensors in Japan and automotive and industrial applications in Germany. He said mature-node demand is tight in AI-related areas such as power management ICs and sensors, but demand in other commodity and consumer-related areas is not as strong.
About Taiwan Semiconductor Manufacturing NYSE: TSM
Taiwan Semiconductor Manufacturing Company (TSMC) is a leading pure-play semiconductor foundry that provides wafer fabrication and related services to the global semiconductor industry. Founded in 1987 by Morris Chang and headquartered in Hsinchu, Taiwan, TSMC manufactures integrated circuits on behalf of fabless and integrated device manufacturers, offering contract chip production across a broad set of technologies and products.
TSMC's service offering covers logic and mixed-signal process technologies, specialty processes for radio-frequency, power management and embedded memory, and advanced nodes used in mobile, high-performance computing and AI applications.
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