$Taiwan Semiconductor (TSM.US)$ The earnings report will be released on January 15 Eastern Time. The revenue for Q4 2025 is expected to reach 1.02 trillion TWD, increasing by 17.81% year-over-year; the anticipated earnings per share is 91.256 TWD, up by 24.4% year-over-year.
The accounting standard used for the above data is US-GAAP.
As the 'stabilizer' of the global semiconductor supply chain, the performance of this chip giant not only affects its own valuation trend but also reflects the actual vitality of multiple sectors such as AI computing power, consumer electronics, and advanced manufacturing. According to forward-looking analyses from JPMorgan and UBS Group, three key themes—AI-driven advanced process volume growth, the supply-demand gap in CoWoS packaging, and gross margin resilience—will form the core highlights of this earnings report. The market also looks forward to management providing critical guidance on the growth blueprint for 2026.
Will Q4 results exceed expectations? Dual focus on revenue and gross margin
Market expectations for this earnings report are generally optimistic. JPMorgan predicts that Taiwan Semiconductor’s Q4 revenue in USD will increase by 2% quarter-over-quarter, driven by higher utilization rates of N3/N5 process nodes and favorable exchange rate impacts, significantly outperforming the company’s previous guidance range of -3% to 1%. The gross margin is expected to reach 62%, surpassing the upper limit of the guidance range of 59%-61%. UBS Group has also made a similar forecast, estimating a Q4 gross margin of 61.3%, with core support coming from structural growth in high-end process orders—demand for AI accelerators and premium iPhone models using advanced processes is offsetting weakness in the mid-tier consumer electronics market.
Notably, this performance will lay the foundation for robust growth in 2026. JPMorgan forecasts a 30% increase in Taiwan Semiconductor’s USD-denominated revenue for 2026, while UBS anticipates a 25% rise, both far exceeding the industry average. The core rationale behind these projections is the explosive demand for computing power driven by AI. As Q4 marks the final quarter of 2025, whether revenue scale and gross margin levels meet optimistic expectations will directly influence market confidence in subsequent growth trajectories.
Three growth drivers: The ramp-up pace of N3, N2, and CoWoS
Under the AI computing power race, Taiwan Semiconductor’s advanced processes and packaging technologies have become core growth engines, making them the most noteworthy details in this earnings report.
First, the N3 process, currently the mainstream choice for AI accelerators, is set to experience a full-scale boom in 2026. JPMorgan estimates that with NVIDIA Rubin and Google TPUv7/v8 products fully transitioning to N3, revenue from this process will grow by 80% year-over-year in 2026. Taiwan Semiconductor is also boosting N3 monthly capacity from 120,000 wafers at the end of 2025 to 147,000 wafers by the end of 2026 through capacity conversion and new factory construction. As Q4 is a critical period for N3 capacity ramp-up, shipment volumes and yield data will directly validate the true strength of AI demand.
Next is the accelerated adoption of N2, an even more advanced process rapidly capturing the high-end market. By plan, three new high-end iPhone and MacBook processors will adopt N2 in the second half of 2026, followed by flagship products from AMD and Qualcomm. JPMorgan predicts N2 revenue will reach 8 billion USD in 2026 and soar to 36 billion USD in 2027, with mass production ramping up much faster than the initial phase of N3. The market expects disclosures on current N2 capacity utilization and customer order fulfillment in the earnings report, which will determine Taiwan Semiconductor’s positioning in the 2nm era.
Finally, there is the supply-demand gap in CoWoS packaging. The reliance of AI chips on advanced packaging has made CoWoS a 'must-win battleground.' JPMorgan forecasts a 69% increase in Taiwan Semiconductor’s CoWoS capacity by 2026, yet a 15%-20% supply-demand gap will persist, forcing some packaging operations to be outsourced to manufacturers like ASE Group. Progress on CoWoS capacity ramp-up and customer order scheduling in the earnings report will directly reflect the stocking pace of AI servers.
Gross Margin Resilience: The Tug-of-War Between Expedited Orders and New Process Technologies
Whether the gross margin can stabilize above the 60% threshold is key to determining Taiwan Semiconductor's profitability inflection point. JPMorgan predicts that by 2026, Taiwan Semiconductor’s gross margin will stabilize around 60%, with Q4 potentially reaching 62%. The core drivers come from three aspects: first, expedited orders (“hot runs”) for N3/N4 process technologies, which command pricing premiums of 50%-100% due to meeting clients' urgent computational needs; second, product mix optimization, with high-performance computing (HPC) now accounting for over 60% of revenue, significantly higher than the gross margin levels of consumer electronics; third, favorable New Taiwan Dollar exchange rates further boosting profitability.
However, there are potential dilutive factors: initial mass production of the N2 process may lower overall gross margins, while expansion of the U.S. fab could bring cost pressures. Nevertheless, the market generally believes that N2 yield progress is better than N3 during its comparable phase, and Taiwan Semiconductor has mitigated dilution through price hikes (a 5% increase in N3/N5 prices in 2026). Gross margin resilience is expected to remain intact. In this earnings report, management’s guidance range for 2026 gross margins will become a crucial anchor for profitability expectations.
Core Forward Guidance: 2026 Growth Targets and AI Capital Expenditure Planning
Beyond Q4 results, the market is more focused on Taiwan Semiconductor’s plans for 2026, particularly three key pieces of information:
First, revenue growth guidance: JPMorgan expects Taiwan Semiconductor to set an annual growth target of around 20%, while its internal forecast stands at 26% (in TWD terms, year-over-year for the first half of the year), with the key difference being the pace of AI capital expenditure implementation. Second, growth expectations for data center AI business: JPMorgan has raised its compound annual growth rate forecast for 2024-2029 to 57%, and the market anticipates Taiwan Semiconductor to confirm this trend in its earnings report, potentially even raising previous guidance. Third, capital expenditure plans: capital spending for 2026 is projected to be in the range of $46 billion to $50 billion (JPMorgan forecasts $48 billion), with investments focused on N2/N3 process technologies and the U.S. factory, which will determine capacity supply over the next 2-3 years.
Additionally, updates on overseas expansion deserve attention. Phase two equipment for the N3 process at Taiwan Semiconductor’s Arizona facility is set to arrive in the second half of 2026, with phase three of the N2 process expected to be operational by the end of 2027. These updates will influence market assessments of its global capacity deployment strategy.
Risks and Variables: Competition, Demand, and Geopolitics
Despite optimistic forecasts, three major risks need to be monitored.
The first is uncertainty in AI capital expenditure. If tech giants cut back on computational investments, it would directly impact demand for advanced process technologies.
Secondly, competitive pressure has arisen as Intel and Samsung's moves in the advanced process field have drawn market attention. However, JPMorgan believes that Taiwan Semiconductor will still dominate over 95% of the AI accelerator market, with a low risk of losing key projects;
Lastly, weak consumer electronics demand, coupled with rising memory costs, may drag down chip orders for smartphones and PCs, thereby affecting the utilization of mature processes.
Focus on 'AI growth quality' rather than single data points
For investors, the core focus of this earnings report is not whether revenue and net profit meet expectations, but the 'growth quality' of AI-related businesses—capacity utilization rates for N3/N2 nodes, supply-demand gaps for CoWoS, and the increase in HPC business share. These metrics are crucial to validating Taiwan Semiconductor's AI logic. Additionally, its revenue growth guidance for 2026, gross margin targets, and capital expenditure plans will directly determine whether its valuation can rise further from current levels.
As the 'core asset' of the global semiconductor industry, Taiwan Semiconductor’s earnings report is not only a reflection of its performance but also a barometer for the health of the AI computing power and advanced manufacturing sectors. Regardless of short-term fluctuations, its technological barriers in 3nm/2nm processes and advanced packaging will remain a core competitive advantage for years to come.
Option Signals
Ahead of the earnings report, the put/call ratio of open interest declined slightly, while overall open interest increased.
Based on options signals, the expected volatility range after the earnings report is ±4.83%.
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