Tough and resilient, TSMC is the true backbone of the semiconductor industry!

$Taiwan Semiconductor(TSM.US) released its Q2 2025 financial report (ending June 2025) during the pre-market hours of the U.S. stock market on July 17, 2025, Beijing time. Key points are as follows:

1. Revenue: TSMC's revenue for this quarter was $30.1 billion, a quarter-on-quarter increase of 17.8%, mainly driven by the growth in demand for high-performance computing and the recovery of the mobile business. The company's revenue exceeded the upper limit of the guidance range ($28.4-29.2 billion), primarily due to the appreciation of the New Taiwan Dollar. In terms of New Taiwan Dollar, the company's quarterly revenue increased by 11.3% quarter-on-quarter, falling within the company's guidance range.

In terms of volume and price (equivalent to 12-inch wafers): ① TSMC's wafer shipments were 3,718 thousand pieces, a quarter-on-quarter increase of 14.1%; ② TSMC's revenue per wafer (equivalent to 12-inch wafers) was $8,088 per piece, a quarter-on-quarter increase of 3.2%.

2. Gross Margin: The company's gross margin for this quarter was 58.6%, within the company's guidance range (57-59%). The appreciation of the New Taiwan Dollar has had a certain impact on the gross margin for the past two quarters. If the company's 2nm enters mass production ramp-up, it will also put some pressure on the gross margin. The company still sets its long-term gross margin target at above 53%.

3. Specific Business Progress: Process, Downstream Applications, and Regions

a. By Process: The proportion of advanced processes below 7nm at TSMC increased again to 74% this quarter. Driven by AI demand, the company's current 3nm and 5nm capacities are fully loaded, with revenue shares of 24% and 36%, respectively. With the subsequent mass production of 2nm, AI chips will shift from 5nm to 3nm, further tilting the company's revenue structure towards advanced processes.

b. Downstream Applications: The main source of the company's revenue growth this quarter was still the high-performance computing (HPC) field, with revenue in this area reaching $18 billion, accounting for 60% of total revenue. Additionally, the company's mobile, IoT, and other businesses have also rebounded, partly due to demand for stocking up amid tariff uncertainties.

c. Regional Revenue: North America remains the company's largest source of revenue, covering major clients like NVIDIA, Apple, and AMD, with a revenue share of 75% this quarter. The most significant quarter-on-quarter growth was in Mainland China, where revenue exceeded $2 billion, increasing the revenue share to 9%, partly due to pre-stocking amid tariff uncertainties.

4. Capital Expenditure: TSMC's capital expenditure for this quarter was $9.63 billion, in line with expectations. The company maintains its full-year capital expenditure target of $38-42 billion. Based on the first half's total capital expenditure of $19.7 billion, it is estimated that the second half's capital expenditure will be between $18.3-22.3 billion. Although ASML has lowered its full-year revenue forecast, the company still maintains its full-year capital expenditure target, further demonstrating TSMC's confidence in its own operations.

5. TSMC Performance Guidance: For Q3 2025, expected revenue is $31.8-33.0 billion (market expectation $32.0 billion) and gross margin is 55.5-57.5% (market expectation 57.36%). Revenue is expected to grow 5-10% quarter-on-quarter, mainly driven by AI demand and Apple's new product stocking; next quarter's gross margin will face pressure from the appreciation of the New Taiwan Dollar.

Dolphin Research's Overall View: TSMC's stable output dispels market concerns.

Yesterday, ASML's guidance downgrade poured cold water on the semiconductor market. TSMC's financial report this time is a strong rebuttal: "Your poor performance doesn't mean mine is poor. Don't drag me down."

On one hand, TSMC's core data for this quarter met guidance expectations, and driven by high-performance demand, the company's revenue will continue to rise next quarter; on the other hand, although ASML's Q4 revenue faces the risk of decline, TSMC's capital expenditure has not been adjusted downwards and remains at $38-42 billion, further demonstrating the company's confidence in its operations. ASML's guidance downgrade is more due to other customers being dragged down by the traditional semiconductor cycle, and TSMC's stable performance in this financial report can dispel market concerns about the company.

Moreover, Dolphin Research believes TSMC is likely to start a performance uptrend in the second half of the year:

a) Increase in GB Series Mass Production: After going through a product transition phase, cloud service providers will focus more on the GB300 product. With Dell recently delivering the world's first GB300 NVL72 to CoreWave, the GB300 series will see a mass production uptrend in the second half of the year. Cloud service providers' capital expenditure this year also shows a "low front, high back" trend, which will help the company's high-performance computing business (HPC) continue to grow in the second half of the year;

b) Stocking for Apple's New Products: Traditional consumer electronics often see a peak season in the second half of the year, and TSMC's performance in the second half will also be better than the first half. Entering the third quarter, TSMC will also start stocking for Apple's new products. If Apple's new products adopt the 2nm process technology this time, it will accelerate the mass production of new process nodes and increase the overall average price of products;

c) Migration to More Advanced Nodes: As TSMC starts mass production of the 2nm process in the second half of 2025, the demand for the original 3nm will shift to 2nm. At the same time, the company is expected to start migrating AI chips from 5nm to 3nm by the end of 2025. Combined with market expectations, custom ASIC chips from NVIDIA, AMD, and major manufacturers will all shift to the 3nm process. As downstream customer products migrate to more advanced nodes, it will drive up product average prices and revenue while further widening the gap with competitors.

Although TSMC's data and guidance for this quarter did not significantly exceed expectations, under the impact of ASML yesterday, it still alleviated market concerns about the company. Considering (a+b+c), the company is likely to start a performance uptrend in the second half of the year, bringing continuous growth expectations to the market.

From an investment perspective: In the medium to long term, although TSMC is already in a market-leading position, with the start of 2nm mass production, the company continues to bind core customers, further widening the gap with competitors. In the short term, TSMC's financial report this time dispels yesterday's market concerns, reflecting the company's confidence in its operations. With the company's current market value ($1.23 trillion), the PE corresponding to the company's 2026 net profit is about 19.5 times, with a year-on-year growth of 20% (assuming revenue +22%, full-year gross margin adjusted to 57.1%, tax rate 16.4%).

Although TSMC and ASML are absolute leaders in their respective fields, TSMC's core customers include NVIDIA, AMD, etc., which are more significantly driven by this round of AI demand. Since the current revenue share of high-performance computing (HPC) has reached 60%, the impact of the traditional semiconductor cycle on TSMC has significantly weakened. Although demand in traditional semiconductor fields such as mobile phones and PCs is weak, this TSMC financial report proves that the current structural demand in the AI field still exists, injecting confidence into the market again. In addition to dispelling concerns with this financial report, with the increase in GB series mass production, the release of Apple's new products, and the advancement of 2nm mass production, TSMC is expected to start a new round of performance uptrend in the second half of the year. With its absolute leading position in the chip foundry field, TSMC remains the "stabilizing force" in the AI semiconductor market.

Here is Dolphin Research‘s detailed analysis of TSMC:

1. Revenue: Steady Growth

In Q2 2025, TSMC reported revenue of $30.07 billion, exceeding its previous guidance range of $28.4–29.2 billion. Revenue grew 17.8% quarter-on-quarter, mainly driven by the expansion of the high-performance computing (HPC) business and favorable exchange rate movements.

Measured in New Taiwan Dollars (NTD), revenue grew 11.3% QoQ, which falls within the company’s guidance range and is broadly in line with expectations.

Since TSMC discloses monthly operating data, its quarterly revenue is typically well anticipated by the market. But how did price and shipment volume contribute to this quarter's revenue growth?

Dolphin Research analyzed TSMC’s Q2 revenue from both volume and pricing perspectives:

1) Volume Perspective:

In Q2 2025, TSMC shipped 3.718 million 12-inch equivalent wafers, representing a 14.1% quarter-on-quarter increase. With volume ramping up for the GB series and the upcoming launch of new Apple devices, wafer shipments are expected to continue rising in the second half of the year.

TSMC’s capital expenditure for the quarter was $9.63 billion, in line with expectations. Despite ASML lowering its revenue guidance, TSMC reaffirmed its full-year capex target of $38–42 billion, reflecting strong confidence in its own business outlook.

2) Pricing Perspective:

In Q2 2025, TSMC’s average selling price (ASP) per wafer was $8,088, up 3.2% QoQ. With 2nm production set to begin in the second half of the year and AI chips shifting from 5nm to 3nm nodes, TSMC's product mix will continue moving toward advanced process technologies—supporting further improvements in ASP.

2. Gross Profit and Gross Margin: Impacted by Exchange Rate Fluctuations

In Q2 2025, TSMC recorded a gross profit of $17.63 billion, representing a 17.4% quarter-on-quarter increase. The gross margin came in at 58.6%, down 0.2 percentage points from the previous quarter. The slight decline in margin was primarily due to the appreciation of the New Taiwan Dollar and cost pressures from overseas fabs.

The two metrics the market cares most about when it comes to TSMC are revenue and gross margin. While revenue is largely anticipated due to the company’s monthly operational disclosures, gross margin has become one of the key focal points of this earnings report.

Dolphin Research analyzes the main drivers behind this quarter’s gross margin dynamics based on the formula:

“Gross Profit = Average Selling Price – Fixed Cost – Variable Cost”

1) ASP per wafer (12-inch equivalent):

This quarter, TSMC’s ASP per wafer was approximately $8,088, up $254 quarter-over-quarter. The increase in product pricing was mainly driven by a higher proportion of advanced nodes and the appreciation of the New Taiwan Dollar (NTD).

2) Fixed Cost (Depreciation & Amortization):

Average fixed cost per wafer was approximately $1,629, a $6 decrease from the previous quarter. While total depreciation and amortization continued to rise, it was offset by higher wafer shipment volumes, which diluted fixed costs on a per-unit basis.

3) Variable Cost (Other Manufacturing Costs):

Average variable cost per wafer rose to $1,718, up $124 quarter-over-quarter. The increase was mainly due to the NTD’s appreciation, which significantly raised variable costs per unit.

Summary:

TSMC’s gross profit per wafer this quarter was $4,741, an increase of $135 compared to the previous quarter. The rise in ASP was largely offset by the increase in variable costs, resulting in a slight decline in gross margin.

Looking ahead, the continued strength of the NTD is expected to further raise variable costs next quarter, putting additional pressure on gross margins.

3. Wafer Mix: AI + New iPhone to Drive Stronger Growth in H2

3.1 By Application Type

High-performance computing (HPC) has become TSMC’s largest revenue segment, with its share rising to 60% this quarter. Although TSMC still serves traditional markets like smartphones, its performance is now mainly driven by AI demand. This quarter, HPC revenue reached $18 billion, up 20% QoQ, primarily driven by shipments of Nvidia’s GPU products.

Other segments such as smartphones, IoT, and automotive also showed some recovery this quarter. While end-market demand remains relatively soft, downstream customers are stocking up in preparation for the second half's peak season and to hedge against tariff uncertainties.

With volume ramp-up of the GB series, HPC growth is expected to continue into the second half. Additionally, driven by inventory buildup for Apple’s new iPhone launch, smartphone business is also set to rebound.

With Nvidia’s GB series and Apple’s new iPhone launches, TSMC’s performance is expected to be even stronger in the second half of 2025.

3.2 By Process Node

This quarter, revenue from sub-7nm nodes increased further to 74%, making advanced process technologies the company’s core revenue driver. Specifically, 3nm accounted for 24% of revenue, while 5nm remained steady at 36%.

Both 3nm and 5nm capacities are currently running at full utilization, and TSMC is preparing to ramp up 2nm production in the second half of the year.

As the company gradually shifts products from 3nm to 2nm, AI chips are also transitioning from 5nm to 3nm. This migration toward more advanced nodes will not only drive further increases in average selling prices but also expand TSMC’s competitive edge.

3.3 By Regional Revenue

From a regional perspective, North America remains TSMC’s largest revenue source, accounting for 75% of total revenue. This is mainly due to major customers like Apple, Nvidia, AMD, and Qualcomm, creating a strong commercial linkage between TSMC and the U.S. market.

Outside of North America, Mainland China and the Asia-Pacific regions are the next largest revenue contributors, each accounting for 9% this quarter. Mainland China’s revenue exceeded $2 billion this quarter, marking the fastest growth among all regions. This growth is primarily driven by customers stocking up in advance amid tariff uncertainties.

Related research by Dolphin Research on TSMC

TSMC

April 17, 2025, Conference Call "TSMC (Minutes): 30% of future 2nm capacity will be in U.S. factories"

April 17, 2025, Financial Report Commentary "Tariff chaos does not hinder 'explosive' guidance, TSMC remains steady?"

January 16, 2025, Conference Call "TSMC: 2025 capital expenditure increased to $38-42 billion (24Q4 Conference Call)"

January 16, 2025, Financial Report Commentary "TSMC: 'Stabilizing Force' is invincible?"

October 17, 2024, Conference Call "TSMC: No intention to acquire Intel (FY24Q3 Conference Call Minutes)"

October 17, 2024, Financial Report Commentary "ASML collapses AI? TSMC stabilizes the market!"

July 18, 2024, Conference Call "TSMC: Full-year revenue growth over 20% (24Q2 Conference Call Minutes)"

July 18, 2024, Financial Report Commentary "ASML and Trump make two 'feints'? What is TSMC afraid of!"

April 18, 2024, Conference Call "TSMC: No adjustment to capital expenditure, maintaining original plan (FY23Q4 Conference Call Minutes)"

April 18, 2024, Financial Report Commentary "TSMC: iPhone underperforms, NVIDIA saves the day"

January 18, 2024, Conference Call "AI is the strongest driving force for future growth (TSMC 23Q4 Conference Call)"

January 18, 2024, Financial Report Commentary "TSMC: 3nm charges forward, Intel 'brings spring breeze'"

October 20, 2023, Conference Call "3nm ramp-up, planning to enter 2nm (TSMC 23Q3 Conference Call)"

October 20, 2023, Financial Report Commentary "TSMC: Surviving the 'performance bottom,' 3nm battle song rises"

July 20, 2023, Conference Call "TSMC: AI frantically assists, 3nm finally lands (2Q23 Conference Call)"

July 20, 2023, Financial Report Commentary "TSMC: NVIDIA saves the day, AI lifts the 'cycle' bottom"

April 20, 2023, Conference Call "Clear bottom in Q2, 3nm mass production imminent (TSMC 23Q1 Conference Call)"

April 20, 2023, Financial Report Commentary "TSMC: The strongest king, also cannot escape the cycle's ups and downs"

January 12, 2023, Conference Call "Inventory will adjust for another half year, growth to wait until the second half (TSMC 22Q4 Conference Call)"

January 12, 2023, Financial Report Commentary "TSMC's bomb, even Buffett's increase can't suppress it"

October 13, 2022, TSMC Conference Call "Even with a bright financial report, TSMC cannot avoid industry recession (Q3 Conference Call)"

October 13, 2022, Financial Report Commentary "TSMC: How long can the 'lonely brave' in the dark night last?"

July 14, 2022, TSMC Conference Call "How does TSMC continue to grow amid the semiconductor cycle downturn? (TSMC Conference Call)"

July 14, 2022, Financial Report Commentary "TSMC: The 'alternative' pride amid order-cutting tide"

April 14, 2022, TSMC Conference Call "2nm on the agenda (TSMC Conference Call)"

April 14, 2022, TSMC Financial Report Commentary "TSMC: Strong 'faith,' irrelevant to the cycle"

April 8, 2022, TSMC In-depth Stock Analysis "TSMC (Part 2): Price discount, faith not discounted"

March 16, 2022, TSMC In-depth Stock Analysis "After the market crash, talk again about the bone-level foundry king TSMC"

January 13, 2022, TSMC Conference Call "What did TSMC management talk about after giving strong quarterly guidance?"

January 13, 2022, TSMC Financial Report Commentary "TSMC is too strong, the 'cycle' avoids it"

October 14, 2021, TSMC Financial Report Commentary "TSMC: The leader takes the lead, still in the spotlight"

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