TSMC's Record Earnings Driven by AI Boom

Taiwan Semiconductor Manufacturing Co. (TSMC) announced on Thursday its consolidated financial results for the second quarter ended June 30, 2025, revealing a significant 60.7% year-over-year surge in net profit. These results surpassed market expectations and set new records, primarily driven by the soaring demand for semiconductors in artificial intelligence (AI) applications.

Detailed Financial Performance

The company's financial data showed revenue of NT$933.79 billion, net profit of NT$398.27 billion, and diluted earnings per share of NT$15.36 (US$2.47 per ADS). Compared to the same period last year, second-quarter revenue increased by 38.6%, and net profit and diluted earnings per share both increased by 60.7%. Compared to the first quarter of 2025, second-quarter revenue increased by 11.3%, and net profit increased by 10.2%. The above data are prepared in accordance with TIFRS and are consolidated financial data. In US dollar terms, second-quarter revenue reached US$30.07 billion, representing a year-over-year increase of 44.4% and a quarter-over-quarter increase of 17.8%. TSMC expects third-quarter revenue to be between US$31.8 billion and US$33 billion. Additionally, the gross profit margin for the quarter was 58.6%, the operating profit margin was 49.6%, and the net profit margin was 42.7%.

Revenue Distribution by Manufacturing Technology

In the second quarter, 3-nanometer process technology shipments accounted for 24% of total wafer revenue; 5-nanometer accounted for 36%; and 7-nanometer accounted for 14%. Advanced processes (defined as 7-nanometer and more advanced) collectively accounted for 74% of total wafer revenue.

AI's Influence on Stock Performance

TSMC's stock has recently garnered market attention, with investors confident in its future prospects. Options traders are betting on continued stock price appreciation, and the cost of hedging against downside risks has fallen to its lowest level since January. This optimism stems primarily from market expectations for the second-quarter earnings report. Analysts previously predicted that TSMC's detailed report released on Thursday would raise full-year guidance and hint at further product price increases. TSMC's stock performance has been strong, with its Taipei-listed shares rising 44% since their low point after the U.S. tariff announcement in April, and its American depositary receipts rising nearly 70% during that period, reaching record highs. This growth is partly attributed to the rebound in the stock of its major customer, NVIDIA, and increased global investor recognition of its vital role in the chip industry. The resurgence of the AI theme has also contributed to the rise of TSMC's stock. Earlier this year, there were market concerns about the high cost of its investments in the United States and the impact of DeepSeek on demand for high-end chips, but these concerns have gradually faded. Despite the continued uncertainty surrounding tariffs and profit margins, analysts generally believe that TSMC will perform well in the second half of the year.

Analyst Expectations

Kevin Wang, director of Mizuho Securities Asia Ltd., said: "Of course, there are still some concerns, such as tariffs or profit margin uncertainty, but overall, I think TSMC will start to outperform in the second half of the year. It will continue to raise prices for advanced process products—because there is almost no competition." At least six brokerages, including HSBC Holdings and Deutsche Bank, raised their stock price expectations for TSMC after the company released sales data last week. Morgan Stanley analysts previously predicted that TSMC is well-positioned to raise its 2025 year-over-year revenue growth guidance to over 20%, as AI demand remains undersupplied. The average of analysts tracked by Bloomberg expects TSMC's Taiwan stock price to have another 11% upside over the next year compared to Wednesday's closing price. Additionally, although the appreciation of the New Taiwan dollar may put some pressure on its profit margins, the continued investment of global companies in AI and the recognition of TSMC among global investors provide strong support for its stock price. Phelix Lee, an analyst at Morningstar, said: "The market is still very much in favor of AI-related stocks." He added that although foreign exchange factors may reduce TSMC's second-quarter gross profit margin by 2 to 3 percentage points, with its dominant market position, TSMC should be able to hedge against exchange rate impacts by raising prices in the future.

Contrasting Fortunes in the Chip Sector

On Wednesday, Dutch lithography giant ASML's stock plummeted, falling more than 11% during the day. The company warned that its 2026 growth target is in doubt due to the impact of U.S. tariff policies. Although second-quarter orders exceeded expectations and revenue and net profit grew, guidance for the third quarter and fiscal year 2025 was lowered.