Analyst(s): Futurum Research
Publication Date: January 16, 2026
TSMC’s Q4 FY 2025 update highlights broad-based strength in 3-nanometer and 5-nanometer demand across AI accelerators and high-end smartphones, alongside a tight capacity backdrop. Management outlined higher FY 2026 capex and multi-year plans to scale N2 and advanced packaging while maintaining disciplined margin and pricing frameworks.
What is Covered in this Article:
- TSMC’s Q4 FY 2025 financial results
- AI accelerator demand and node leadership
- Capacity expansion and global footprint updates
- Margin levers amid cost headwinds
- Guidance and Final Thoughts
The News: Taiwan Semiconductor Manufacturing Company (NYSE: TSM) reported Q4 FY 2025 revenue of NT$1.0 trillion (slightly ahead of consensus estimates), up 20.5% year on year (YoY) and 5.7% quarter on quarter (QoQ). Advanced technologies (7-nanometer and below) accounted for 77% of wafer revenue, with 3-nanometer at 28%, 5-nanometer at 35%, and 7-nanometer at 14%. By platform, High Performance Computing (HPC) was 55% of revenue, Smartphones 32%, Internet of Things (IoT) 5%, Automotive 5%, and Digital Consumer Electronics (DCE) 1%. Operating income was NT$565 billion, up 32.7% YoY, with an operating margin at 54.0% (3.4% QoQ). Net income was NT$505.7 billion, up 35.0% YoY, and diluted earnings per share (EPS) were NT$19.50 versus NT$14.45 in the prior year.
“Our business in the fourth quarter was supported by strong demand for our leading-edge process technologies,” said Wendell Huang, Senior VP and Chief Financial Officer of TSMC. “Moving into first quarter 2026, we expect our business to be supported by continued strong demand for our leading-edge process technologies.”
TSMC Q4 FY 2025 Results and FY 2026 Outlook Signal AI-Led Growth
Analyst Take: TSMC’s results and outlook reinforce that AI infrastructure builds are expanding and pulling through leading-edge silicon and advanced packaging at scale. With 3-nanometer (N3) contributing 28% of Q4 wafer revenue and advanced nodes at 77%, the company’s execution at the most advanced geometries remains central to its positioning. Management also cited AI accelerators at high-teens percent of FY 2025 revenue and raised multi-year growth expectations tied to AI adoption across consumer, enterprise, and sovereign segments. Tight capacity, pricing discipline, and cross-node optimization provide near-term margin support while overseas fab ramps and N2 transitions introduce measured dilution. The setup points to continued outperformance versus broader foundry growth.
AI Accelerator Demand And Node Leadership
TSMC highlighted robust AI-related demand throughout FY 2025, with AI accelerator revenue at high-teens percent of total and momentum expected across consumer, enterprise, and sovereign AI use cases. The company’s N3 mix reached 28% of Q4 wafer revenue (24% for FY 2025), while 5-nanometer (N5) and 7-nanometer (N7) were 35% and 14% in Q4, underscoring concentrated demand at advanced nodes. Management expects N3 gross margin to cross the corporate average during FY 2026, reinforcing node leadership economics as volumes scale. N2 entered high-volume manufacturing (HVM) in Q4 FY 2025 in Hsinchu and Kaohsiung with good yields, supporting next-wave AI and smartphone designs. The roadmap also advances to A16, positioning TSMC for continued energy-efficient computing leadership. Taken together, AI’s multi-year pull and node leadership point to durable mix and pricing advantages.
Capacity Expansion And Global Footprint
TSMC is stepping up capacity additions to match multi-year AI demand, with FY 2026 capex guided to $52 billion to $56 billion and a plan to convert N5 capacity to N3 where needed. In the United States, Arizona Fab 1 is in HVM (since Q4 FY 2024), Fab 2 construction is complete with tool-in during FY 2026, and HVMis planned for the H2 FY 2027, and Fab 3 construction is underway alongside permitting for a fourth fab and an advanced packaging fab. The company acquired additional land to scale an independent GIGAFAB cluster in Arizona, aligning with U.S. customer demand and geographic resiliency objectives. In Japan, Kumamoto’s specialty fab entered volume production in late FY 2024 with good yields, and the second fab is underway; in Germany, Dresden construction is progressing per plan. In Taiwan, multiple N2 phases across Hsinchu and Kaohsiung are being prepared, preserving core leading-edge scale in the home base. This footprint strategy balances customer proximity, resiliency, and scale while maintaining disciplined capacity planning.
Margin Levers, Cost Headwinds, And Pricing
Gross margin rose to 62.3% in Q4, with management guiding Q1 FY 2026 gross margin to 63% to 65% and operating margin to 54% to 56%, supported by cost improvements and higher utilization. Margin headwinds include 2% to 3% dilution in FY 2026 from the initial N2 ramp and 2% to 4% dilution over time from overseas fab scaling. TSMC plans to offset this through manufacturing excellence, cross-node capacity optimization (N7/N5/N3), and productivity-driven wafer output gains. Pricing remains “strategic, not opportunistic,” and the company reiterated its long-term gross margin ambition of 56% or higher through the cycle, with return on equity (ROE) in the high-20% range. The framework also benefits from an AI mix and advanced packaging expansion, with 10% to 20% of FY 2026 capex slated for packaging, testing, mask-making, and others. Overall, management’s levers suggest sustainable margin resilience amid elevated capex and node transitions.
Guidance and Final Thoughts
Management expects Q1 FY 2026 revenue of $34.6 billion to $35.8 billion, with gross margin of 63% to 65% and operating margin of 54% to 56%, underpinned by continued leading-edge strength. For FY 2026, capex will rise to $52 billion to $56 billion, with 70% to 80% directed to advanced processes and the balance to specialty and advanced packaging, aligning with multi-year AI capacity needs. TSMC forecasts Foundry 2.0 industry growth of about 14% in 2026 and expects to grow close to 30% in U.S. dollar terms, while maintaining long-term revenue CAGR approaching 25% (2024–2029). Management also raised its AI accelerator five-year growth outlook to approach a mid-to-high 50% CAGR (2024–2029), reflecting deep engagement with customers and end-customers. With capacity tight, engagement cycles extending two to three years, and a disciplined planning system, TSMC is positioned to remain the effective capacity provider for AI and HPC.
See the full press release on TSMC’s Q4 FY 2025 financial results on the TSMC website.
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