Taiwan Semi Earnings: Firm Shrugs off Tariff Blows Amid Insatiable AI Demand

Key Morningstar Metrics for Taiwan Semiconductor Manufacturing

• Fair Value Estimate: $306.00
• Morningstar Rating: ★★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Taiwan Semiconductor Manufacturing’s Earnings

Taiwan Semiconductor Manufacturing TSM raised its full-year revenue growth guidance by 30% in USD terms from the mid-20s. Its June-quarter revenue was TWD 934 billion ($30.1 billion), up 11% sequentially. Gross margin fell 17 basis points from the prior quarter to 58.6%.

Why it matters: Strong demand from AI and higher utilization in mature process nodes support Taiwan Semi’s higher full-year guidance. Data center customers are investing in spite of tariffs and have already shown excitement to move to upcoming nodes.

• Management’s comments back our view that 2026 capital expenditure would be modestly higher than 2025’s $38 billion-$42 billion. They have said the full-year outlook and capital spending budgets factor in conservatism from tariffs and other geopolitical risks, but demand remains robust.
• We’re more confident in Taiwan Semi reaching gross margins in the high 50s in the long term, as we see the 2 nm node is priced with larger markups than 3 nm, and the firm is broadening the appeal of 3 nm-7 nm nodes to cost-conscious customers as equipment finishes depreciation.

The bottom line: We hike our fair value estimate for Taiwan Semi to $306 per share from $262 on better guidance and our long-term outlook. The stock is undervalued, as the market is overestimating tariff effects and underestimating the longevity of AI investments.

• We boost our revenue and EPS estimates for 2025-29 by 5% and 9%, respectively, on a higher AI contribution and better outlook in industrial and smart home markets.

Coming up: The United States may announce a trade deal with Taiwan by the Aug. 1 tariff imposition deadline, but it may have a limited effect on Taiwan Semi. The firm has ample 4 nm capacity that can be used by US clients, should tariffs spiral from expectations of about 20%, judging by trade deals already made.

Between the lines: Taiwan Semi’s capital spending in 2026 should focus on meeting AI demand. The cautious 2026 outlook of its supplier ASML could mean the firm is outspending Intel and Samsung even more, reducing the latter’s chances of catching up.