Analyst(s): Ray Wang
Publication Date: July 21, 2025
TSMC’s Q2 FY 2025 results underscore how surging AI demand, unrivaled technology leadership, and consistent execution enable the world’s leading foundry to prosper despite macroeconomic and geopolitical headwinds.
What is Covered in this Article:
- TSMC’s Q2 FY 2025 financial results
- The central role of AI demand as the primary growth driver in TSMC’s business
- Assessment of macroeconomic factors and the impact of overseas investments on margin and profitability
- The company’s technology roadmap and continued leadership in advanced nodes
- Forward guidance for Q3 and 2025, and analysts’ perspective on TSMC’s strategic outlook
The News: TSMC reported Q2 2025 revenue of NT$933.79 billion (US$30.07 billion), up 11.3% sequentially and 38.6% YoY in NT dollars. In USD terms, revenue grew 17.8% QoQ and 44.4% annually, surpassing earlier guidance.
The company’s gross margin stood at 58.6%, a slight sequential decrease of 0.2% despite notable margin headwinds from overseas investment and unfavorable foreign exchange rates.
Regarding the company’s revenue by wafer technology, its advanced nodes (7nm and below) accounted for 74% of total revenue, which is 1% higher than Q1 2025 based on Futurum’s research. Respectively, the 3nm, 5nm, and 7nm processes comprising 24%, 36%, and 14% of the total revenue, and rest of share are semiconductors above 7nm.
By application, high-performance computing (HPC) drove 60% of its Q2 revenue, up 14% QoQ; smartphone platforms contributed 27%, up 7% QoQ; IoT and automotive segments each represented 5%.
Looking to Q3 2025, management guided revenue between US$31.8 and US$33.0 billion, an estimated up 8% QoQ growth, or 38% YoY at the midpoint, assuming a USD/TWD rate of 29.
Gross margin is expected to range from 55.5% to 57.5%, with operating margin between 45.5% and 47.5%. For full-year 2025, TSMC expects revenue growth of close to 30% in USD, fueled by strong AI and HPC platform momentum.
“Our business in the second quarter was supported by continued robust AI and HPC-related demand,” said Wendell Huang, Senior VP and CFO of TSMC. “Moving into third quarter 2025, we expect our business to be supported by strong demand for our leading-edge process technologies,” he added.
TSMC Q2 FY 2025 Earnings: Too Impressive To Be True
Analyst Take: Put simply, TSMC’s Q2 performance not only exceeded most analysts’ expectations by defying macroeconomic and offshore investment headwinds but also demonstrated the company’s central role in AI, technology leadership, and operational excellence.
AI Remains the Most Important Story
AI and HPC (high performance computing) unsurprisingly remain the clear growth driver for TSMC, climbing 14 % QoQ and reaching 60 % of its quarterly revenue for the first time in the company’s history, which, in our view, is clear evidence that soaring AI demand is making the company the standout foundry beneficiary. This aligns with companies’ acceleration of 3nm and 5nm technologies. TSMC’s 5nm revenue jumped 18 % QoQ to $10.8 billion (up from $9.17 billion). In comparison, 3nm revenue surged 29 % QoQ to $7.21 billion (vs. $5.61 billion), reflecting the strong demand for AI accelerators propelled by 1) explosive inference deployments, 2) global data center buildouts, and 3) a worldwide push for sovereign‑AI infrastructure.
CEO C.C. Wei: “…..we’re tight in N3 capacity. It will be continued for a couple of years, very tight. And in fact, N5 also very tight. The demand is high because a lot of our AI products still in the 4-nanometer technology node, and they will transition to 3-nanometer probably in the next two years. So in meanwhile, N5 are still very tight in capacity. N3, even tighter. And so we are working hard.”
The AI demand remains strong, as management said, “not seen any change in our customers’ behavior so far.” “AI demand is very strong, and so is CoWoS capacity, the demand is very strong.” It is also clear that it remains supply-constrained for TSMC, especially in advanced nodes. With advanced‑node capacity still tight relative to surging demand, TSMC can continue to leverage its unrivaled market position and pricing power to defend margins despite macroeconomic headwinds while maintaining strong and collaborative relationships with customers.
Moreover, as most AI accelerators in the market are mostly fabricated in TSMC’s N5 and N4 process nodes, we are expecting more but gradual node migration to 3nm and upcoming 2nm for the firm’s AI chip customers, including Apple, NVIDIA, AMD, Broadcom, Marvell, etc. Given the firm’s technology leadership in 3nm and likely 2nm, we believe TSMC will successfully migrate to 3nm and dominate the sub-3nm market as its competitors, such as Samsung and Intel, have been struggling with 3nm and below fabrication. More broadly speaking, we believe TSMC’s advanced node will continue to be, similar to NVIDIA, positioned as the leading beneficiary in the era of AI and compute.
Defying the Margin Headwinds
In addition to the impressive performance in AI, TSMC defies most analysts’ expectations in terms of firm gross margin, which many believe will be impacted by significant foreign exchange volatility in Taiwan since April and the firm’s expanding overseas investment in the U.S., Japan, and Europe. In Q2, as previously noted, the company reported 58.6% gross margin, down 0.2% QoQ.
Management disclosed that foreign‑exchange volatility created “about 220 basis‑points margin headwind,” while the Arizona fab ramp contributed “slightly more than 100 basis points” of additional dilution. In other words, TSMC should confront about 3.2% to 3.3% margin dilution in Q2, but surprisingly, its gross margin decreased by 0.2% QoQ. This suggests other factors of a firm’s business offset the impact of margin dilution.
Historically, TSMC has been outlining six factors driving the company’s profitability performance: 1) leadership, technology development and ramp-up, 2) pricing, 3) capacity utilization, 4) cost reduction, 5) technology mix, and 6) foreign exchange rate. While foreign exchange serves as a mindful headwind for the company, five of six remaining factors are favorable to the company, which were addressed quite positively in the call.
Senior VP and CFO Wendell Huang: “This was primarily due to an unfavorable foreign exchange rate and margin dilution from our overseas fabs, partially offset by higher-than-expected overall capacity utilization and cost improvement efforts.”
We don’t need to rehash TSMC’s well‑established tech leadership. The N2 and A16 ramps remain on schedule, and we have yet to hear any technical obstacles. Given its broad customer base and sustained demand, TSMC still leads the industry in capacity utilization, which keeps fabs tight. It delegates the company’s pricing power and margin strength with its technology leadership, especially in the capacity-constrained sub-5nm category.
Cost reduction is another tailwind. While the Arizona fab complex carries some margin dilution, TSMC’s operational discipline is accelerating the P2 and P3 build‑outs and maintaining P1’s output quality at the same standard as its Taiwan advanced node production lines.
“Despite the higher cost of overseas fabs, we will leverage our increasing size in Arizona and work on our operations to improve the cost structure. We will also continue to work closely with our customers and suppliers to manage the impact,” said Senior VP and CFO Wendell Huang.
Regarding the technology mix, as previously noted, the acceleration in advanced nodes continues to be driven by AI and devices, especially for sub-5nm orders. Demand for 5nm, 3nm, and upcoming 2nm is very strong, tightening TSMC’s overall capacity but driving better pricing capability and margin performance. This, unsurprisingly, is another positive factor for the firm’s margin performance.
Although the street remains laser‑focused on gross margin, we’re confident TSMC can hold at least 53 % for the rest of the year, and likely exceed its own 53 % baseline, given the five profitability levers outlined above. After hearing management’s “uncommon” comment in the margin, we are especially confident in our assessment.
“And we have confidence that the 53% gross margin and higher, I still want you guys to pay more attention to “and higher,” CEO C.C. Wei.
While C.C. Wei is one of TSMC’s CEOs who approach earnings calls with more optimism, we do think the comment is rooted in management’s confidence in the company’s proven competitiveness across almost every measurement.
Accelerating the Technology Roadmap
TSMC has placed technology leadership at the forefront of its competitiveness. During the earnings call, management also provided some new updates on its technology roadmap, including upcoming N2, A16, and future A14.
Management confirmed that first‑generation gate‑all‑around (GAA) N2 is on track for volume production in 2H25. It offers a 10–15 % speed lift and 25–30 % power reduction versus N3E, plus >15 % density gains. Early demand for N2 has already exceeded the first two-year tape‑out counts of both N5 and N3, driven by flagship smartphones and HPC.
Similar to TSMC’s roadmap in N3, TSMC will offer an N2 variant called N2P one year later, then introduce A16 with “Super Power Rail” (SPR) technology in 2H26. This technology will provide a further 8–10 % speed benefit, 15–20 % power benefit, and an additional 7–10 % density bump. SPR is TSMC’s backside power delivery solution that will be first featured in its A16 process technology and then A14.
Looking beyond, A14 will deliver a second‑generation nanosheet architecture with another full‑node stride, with the aim to enter volume production in 2028. Compared to N2, A14 will deliver an additional 10–15 % speed boost, 25–30 % more power efficiency, and roughly 20 % extra density. In 2029, to further boost A14 capability, TSMC will equip A14 with SPR and extend the node’s life just like the N2 and N3 families.
Besides its main process technology roadmap, management also mentioned two notable developments.
On edge devices, the management noted that die sizes for edge‑device chips have already grown by roughly 5–10 %, pointing to volume deployment in just six to twelve months, a much faster timeline than the one‑ to two‑year cycle previously guided, implying the upcoming acceleration of orders.
In addition, one analyst flagged the risk of overcapacity in legacy nodes ( > 7 nm) in the earnings call, but management called the worry overdone. They stressed that TSMC’s mature‑node mix skews toward specialty technologies (e.g., RF, CMOS image sensors, or high‑voltage), helping the company stand out from the competition.
The management also underscores that, should meaningful oversupply emerge, the company would simply shelve plans for any additional mature‑node fabs in Japan or Germany. While we think the competition in legacy chips has become more crowded in recent years, we continue to be confident in TSMC’s custom offerings so that its legacy chip customers can fend off the competition. We think the larger risk here for TSMC might not be the competition, but rather the volatile automotive market.
Guidance and Final Thoughts
TSMC’s Q2 results reaffirm its technology leadership, strong operational execution, and AI‑driven dominance. We remain highly optimistic about TSMC’s outlook. We think the firm is poised to harness the accelerating AI wave as the indispensable silicon backbone, firmly controlling the critical layer of the AI hardware supply chain. Management’s guide for roughly 30 % YoY revenue growth and confidence on gross margins in the earnings call is aligned with our optimism.
While we think the company is likely to continue to deal with margin headwinds from FX and oversea investment in Q3 and potentially coming quarters, it is clear to us that TSMC’s pricing power through its technology leadership, operational execution for its oversea expansion, and strong customer relationship are likely to be firm’s leverage to alleviate the margin dilution concerns.
The pricing power also comes at a time when there is clearly significant demand for advanced semiconductors, which we believe will drive notable growth for the company in the coming quarters. We do not think this trend is going to stop anytime soon. As TSMC migrates from 5 nm to 3 nm and ultimately 2 nm, margins should widen further, considering the higher pricing and margin for 3nm and 2nm chips, allowing the company to capitalize on a still‑tight, supply‑constrained market.
TSMC is poised to keep thriving in the AI era. Its unmatched technology, market leadership, deep customer relationships, and cautious but effective execution and management style leave no visible cracks in the company’s dominance.
Read the full press release on TMSC’s website.
Disclosure: Futurum is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of Futurum as a whole.
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Author Information
Ray Wang is the Research Director for Semiconductors, Supply Chain, and Emerging Technology at Futurum. His coverage focuses on the global semiconductor industry and frontier technologies. He also advises clients on global compute distribution, deployment, and supply chain. In addition to his main coverage and expertise, Wang also specializes in global technology policy, supply chain dynamics, and U.S.-China relations.
He has been quoted or interviewed regularly by leading media outlets across the globe, including CNBC, CNN, MarketWatch, Nikkei Asia, South China Morning Post, Business Insider, Science, Al Jazeera, Fast Company, and TaiwanPlus.
Prior to joining Futurum, Wang worked as an independent semiconductor and technology analyst, advising technology firms and institutional investors on industry development, regulations, and geopolitics. He also held positions at leading consulting firms and think tanks in Washington, D.C., including DGA–Albright Stonebridge Group, the Center for Strategic and International Studies (CSIS), and the Carnegie Endowment for International Peace.
