TSMC, AI Demand Keeps the World’s Chipmaker Firing on All Cylinders

Why TSMC 77% of Revenue Now Comes From the Cutting Edge

TSMC, the founding force behind the global foundry model and the manufacturer of the world’s most advanced semiconductor chips, delivered another very strong quarter.
Revenue reached approximately US$33 billion, representing 25% year-on-year growth. This result reinforces a trend we continue to see across the semiconductor industry. Demand for advanced

AI chips remains robust, driven by ongoing investment in next-generation computing, data centres, and AI infrastructure.

What stood out most in this result was the quality of that revenue. Around 77% was generated from advanced process nodes, defined as 7 nanometres and below. These nodes underpin the highest-performance chips currently in production, including leading-edge AI accelerators and next-generation processors.

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Proof the AI Chip Cycle Still Has Momentum

From a profitability perspective, TSMC delivered an exceptional result. Gross margins reached 62%, while operating margins expanded to 54%. These numbers send a very clear message to investors. Advanced process nodes are commanding strong pricing power and are running at high utilisation rates.

This margin profile is not accidental. It reflects TSMC’s structural advantage in leading-edge manufacturing, where demand continues to outstrip supply. Customers are willing to pay a premium for access to advanced nodes because there are very few viable alternatives capable of producing at this scale and quality.

A key driver of this advantage is TSMC’s access to the most advanced lithography equipment from ASML. These machines are essential for producing chips at 7 nanometres and below, and supply is highly constrained. TSMC not only has priority access to this equipment, but also holds a deep backlog of future deliveries.

For competitors, this creates a significant barrier to entry. Without access to the same volume of cutting-edge machinery, it becomes extremely difficult to replicate TSMC’s capabilities or challenge its position in advanced-node manufacturing.

Why Advanced Nodes Are Driving the Next Phase of Growth

The revenue mix further reinforces why margins continue to expand at TSMC. During the quarter, 3 nanometre chips accounted for 28% of total sales, 5 nanometre contributed 35%, and 7 nanometre added a further 14%. Together, these advanced nodes made up the clear majority of revenue and continue to support higher pricing and stronger margins.

Why This Looks Like Stabilisation, Not a Peak

Management has been firm in its expectations that this structural trend will continue into the March quarter of FY26. Revenue guidance for Q1 FY26 sits between US$34.6 billion and US$35.8 billion, with gross margins expected to be around the 65% level and operating margins guided between 54% and 56%.

For investors, this points to a stabilising Q1 FY26, rather than a slowdown. Demand for leading-edge nodes remains strong, utilisation is holding up well, and the company continues to benefit from a favourable mix shift toward higher-margin products.

Looking further ahead, TSMC has guided to 2026 capital expenditure of between US$52 billion and US$56 billion.