Wall Street comments on TSMC's financial report: Capital expenditure and profit margin guidance are too

# Source: Wall Street Insights

## Li Jia

TSMC’s gross profit margin exceeded 60% for the first time in the fourth quarter, with net profit beating expectations. The company also sharply raised its 2026 capital expenditure guidance to $52–56 billion, far surpassing market forecasts. Meanwhile, TSMC upwardly revised its long-term targets for gross profit margin and revenue growth, explicitly doubling down on the sustained boom in AI demand. A Goldman Sachs analyst bluntly stated, *"Anyone hoping for a pullback will be disappointed."* The Wall Street consensus holds that, through its far-exceeding-expectations capital expenditure and profit margin guidance, TSMC has completely broken its conservative image as an AI production capacity bottleneck and demonstrated absolute confidence in the industry's long-term demand.

Faced with TSMC’s significantly better-than-expected earnings report, Goldman Sachs analyst Sean Johnstone commented directly: *"Anyone expecting a pullback will be disappointed."*

TSMC’s latest financial results showcased a market-catching strong performance: its gross profit margin topped 60% for the first time in the fourth quarter, with net profit reaching $16 billion, exceeding analysts’ expectations. More crucially, the company hiked its 2026 capital expenditure guidance substantially to $52–56 billion, nearly 40% higher than previous estimates, sending a clear signal of its all-out push into the AI chip track.

Huang Jen-chao, Senior Vice President and Chief Financial Officer of TSMC, emphasized that the performance growth is mainly driven by robust demand for advanced process technologies, and this momentum is expected to extend into the new year.

Sean Johnstone’s assertion reflects the broad consensus on Wall Street: leveraging its technological leadership and capital moat, TSMC will continue to dominate the global AI chip manufacturing landscape. The results and guidance, described by the market as "mind-blowing", not only highlight the company’s conviction in the long-term growth of artificial intelligence demand but also further consolidate its irreplaceable core position in the global semiconductor industry chain.

### Capital Expenditure Far Exceeding Expectations

TSMC raised its 2026 capital expenditure guidance sharply to $52–56 billion, a figure that not only significantly outpaces the $45–46 billion generally expected by sell-side analysts but also surpasses the $47–52 billion forecast by buy-side institutions. A JPMorgan report pointed out that the company further hinted that the scale of capital investment over the next three years will be "significantly higher", thereby reducing market expectations of a potential pullback in near-term spending.

According to a Bank of America Merrill Lynch report, TSMC revised up its 2024–2029 revenue compound annual growth rate (CAGR) guidance from 20% to 25%, and lifted its expected CAGR for the AI accelerator business from the "mid-40% range" to the "mid-to-high 50% range". The company projects that its full-year 2026 revenue will achieve a year-on-year growth of nearly 30%, higher than the market’s original expectation of a mid-20% growth rate.

In response to the market’s concern over whether the AI investment cycle is in a bubble, Mark Liu, Chairman and Chief Executive Officer of TSMC, admitted frankly: *"I am also nervous about this... but AI demand is real; not only real, but also integrating into daily life."* The company’s analysis suggests that the current key bottleneck restricting the development of the AI industry lies in TSMC’s front-end wafer production capacity, rather than power supply or financing conditions, and the capacity tightness is mainly reflected in the wafer manufacturing segment, not in backend packaging.

### Structural Improvement in Gross Profit Margin, Profitability Beating Expectations

TSMC’s gross profit margin in the fourth quarter hit 62.3%, which is not only higher than the company’s previous guidance range of 59%–61% but also exceeds the market’s general expectation of 60.8%. The operating profit margin for the quarter reached 54%, also surpassing the market’s forecast of 51%. The company further raised its Q1 gross profit margin guidance to 63%–65%, significantly higher than Bank of America Merrill Lynch’s estimate of 60.9% and the market’s consensus expectation of 60.0%.

A JPMorgan report indicated that TSMC has revised its long-term structural gross profit margin target upward from "53% and above" to "56% and above", mainly benefiting from improved pricing power and operational efficiency gains. The company also lifted its return on equity target from 25% to nearly 30%. Although the initial mass production of the N2 process in the second half of 2026 may cause a phased dilution of gross profit margin, the overall profitability for the full year is expected to remain at a high level.

Haas Liu, an analyst at Bank of America Merrill Lynch, opined that TSMC’s margin expansion stems mainly from two aspects: first, the continuous price increases of advanced process nodes and the compound annual growth rate of over 20% brought by process node migration; second, the expanding proportion of higher-priced advanced process products in the product mix.

In addition, the company’s dominant market share in the advanced process segment, as well as the optimized capacity allocation from traditional mature processes to advanced packaging, are also helping it maintain a more stable and sustainable capacity utilization rate.

### Semiconductor Equipment Stocks to Benefit, AI Investment Cycle to Continue

TSMC’s sharply upgraded capital expenditure outlook constitutes a direct positive catalyst for the Asian semiconductor equipment sector. A Goldman Sachs report noted that related companies such as Tokyo Electron and Advantest are expected to see strong rallies. Meanwhile, SK Hynix is also accelerating the operational pace of its new factories to cope with the rapidly rising demand for DRAM memory chips.

Separately, media reports indicate that OpenAI plans to launch its first AI chip, Titan, by the end of 2026. The chip will be jointly developed with Broadcom and adopt TSMC’s 3nm process. Its follow-up model, Titan II, is expected to be upgraded to TSMC’s A16 process. In addition, OpenAI has also selected Samsung’s 2nm Exynos chip for its artificial intelligence earphone "Sweetpea".

In terms of institutional ratings, JPMorgan maintained its "Overweight" rating on TSMC with a target price of NT$2,100, based on a valuation of 20 times the expected price-to-earnings ratio for 2027. Bank of America Merrill Lynch also kept its "Buy" rating with a target price of NT$2,150. Analysts believe that the company will remain in a virtuous cycle of high growth and margin expansion, mainly driven by sustained artificial intelligence investment and favorable pricing prospects.

Goldman Sachs analyst Johnstone concluded that TSMC has long been regarded as a key production capacity bottleneck in the AI industry chain due to the company’s previously cautious stance on capital investment. Now, not only has the management raised the expenditure guidance to a level far exceeding optimistic expectations, but it has also clearly stated that the investment plan over the next three years will be "significantly higher". This is a clear positive signal for the entire semiconductor equipment and AI sectors, indicating that the major capacity bottleneck player has begun to accelerate supply expansion.

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