TSMC 2Q26 Earnings: Full-Year Growth Guided to Slightly Above 40%, Ahead of the Street
2330 TT · Semiconductors
TSMC reported 2Q26 revenue of NT$1,270.4bn (US$40.2bn), up 36.0% YoY and finishing at the top of the guided band, with gross margin of 67.7% and operating margin of 60.3% both above their guided ranges. Management then increased full-year guidance: FY26 revenue growth is now guided to slightly above 40% in US dollar terms, above the roughly 37% the street had penciled in before the print, and the FY26 capital budget was lifted to US$60-64bn with a further US$100bn committed to Arizona.
Key Takeaways
The raised full-year guide sits above the street
Management lifted FY26 revenue growth guidance from above 30% to slightly above 40% in US dollar terms. Before the print, consensus implied roughly 36.9% growth, so the new guide moved past the street's number rather than toward it. The 3Q26 revenue guide of US$44.6-45.8bn backs the raise with a further 12% sequential increase at the midpoint.
Price and mix drove two-thirds of the sequential increase
Revenue rose 12.0% QoQ while wafer shipments grew 3.9%, so revenue per wafer increased about 8%. HPC grew 20% QoQ to 66% of revenue, 3nm rose to 30% of wafer revenue, and 2nm contributed its first 3% in its opening ramp quarter. Smartphone fell 4% QoQ to 22% of revenue.
Margins beat guidance; the 2nm ramp cuts them in the second half
Gross margin of 67.7% and operating margin of 60.3% each finished above the top of their guided ranges, on cost improvement and a higher utilization rate. The offset arrives in the second half: management expects the steep 2nm ramp to dilute gross margin by 3-4pp in 2H26 and guided 3Q26 gross margin to 65-67%.
A second capex raise this year backs the demand view
The FY26 capital budget moved from US$52-56bn in January to US$60-64bn now, and management committed a further US$100bn to Arizona, taking that program to US$265bn. CFO Wendell Huang said capex in the next three years will be even more significantly higher than in the past three, and CEO C.C. Wei described demand as very strong through 2029-2030.
| Metric | 2Q26 | YoY | 3Q26 guide |
|---|---|---|---|
| Revenue (US$bn) | 40.20 | +33.7% | 44.6-45.8 |
| Revenue (NT$bn) | 1,270.38 | +36.0% | 1,427-1,466* |
| Gross margin | 67.7% | +9.1pp | 65-67% |
| Operating margin | 60.3% | +10.7pp | 56-58% |
| Net margin | 55.6% | +12.9pp | n.d. |
| Net income (NT$bn) | 706.56 | +77.4% | n.d. |
| Diluted EPS (NT$) | 27.25 | +77.4% | n.d. |
| EPS ex Vanguard gain (NT$) | 25.01† | +62.8% | n.d. |
| Wafer shipments (Kpcs, 12"-equiv) | 4,336 | +16.6% | n.d. |
| HPC share of revenue | 66% | +6pp | n.d. |
* Guide converted at its own NT$32 per US$ assumption. † Excludes NT$2.24 per share from the NT$63.2bn Vanguard disposal and mark-to-market gain.
Source: Company disclosures, Zero One Investment Research
1. A clean beat on every guided line, then increased full-year guidance
TSMC reported 2Q26 revenue of NT$1,270.4bn, up 12.0% QoQ and 36.0% YoY; in US dollars, revenue of US$40.2bn finished at the top of the US$39.0-40.2bn guided band. Gross margin of 67.7% came in above the guided 65.5-67.5% range, and operating margin of 60.3% finished 1.8pp above the top of its 56.5-58.5% range. The exchange rate averaged NT$31.60 per US$ against the NT$31.7 guide assumption, so currency contributed nothing to the beat.
Net income of NT$706.6bn and EPS of NT$27.25, both up 77.4% YoY, include a one-off gain. Non-operating items carried NT$63.2bn of disposal and mark-to-market gains on Vanguard International Semiconductor shares after TSMC sold an 8.1% stake on 15 May 2026, worth NT$2.24 of EPS. Excluding it, EPS of about NT$25.01 still grew 63% YoY. The effective tax rate rose to 18.1% from 16.8% in 1Q26 on the tax on undistributed retained earnings.
First-half revenue of NT$2,404.5bn is up 35.6% YoY, tracking the full-year revenue the street carried into the print. Pre-print consensus implied FY26 revenue of about NT$5,214bn, or 36.9% growth; the first half stands at 46.1% of that figure, in line with last year's second-half-weighted split of 46.5%. Zero One Investment Research's model was calibrated on that consensus in early July, so our prior forecast carried the same full-year picture.
| Income statement | 2Q26 | 2Q25 | YoY | 1Q26 | QoQ |
|---|---|---|---|---|---|
| Revenue (NT$bn) | 1,270.38 | 933.79 | +36.0% | 1,134.10 | +12.0% |
| Revenue (US$bn) | 40.20 | 30.07 | +33.7% | 35.90 | +12.0% |
| Gross profit (NT$bn) | 860.31 | 547.37 | +57.2% | 751.30 | +14.5% |
| Gross margin | 67.7% | 58.6% | +9.1pp | 66.2% | +1.5pp |
| Operating income (NT$bn) | 766.60 | 463.42 | +65.4% | 658.97 | +16.3% |
| Operating margin | 60.3% | 49.6% | +10.7pp | 58.1% | +2.2pp |
| Net income (NT$bn) | 706.56 | 398.27 | +77.4% | 572.48 | +23.4% |
| Net margin | 55.6% | 42.7% | +12.9pp | 50.5% | +5.1pp |
| Diluted EPS (NT$) | 27.25 | 15.36 | +77.4% | 22.08 | +23.4% |
Source: Company disclosures, Zero One Investment Research
2. HPC and the leading edge carried the mix
HPC grew 20% QoQ to 66% of revenue, from 60% a year ago, while smartphone fell 4% QoQ to 22%. Automotive rose 15% QoQ to 4% of revenue, IoT rose 4% to a 5% share, and DCE rose 5% to 1%. By geography, customers based in North America reached 78% of revenue, up from 75% a year ago, while China declined to 6% from 9%.
Advanced technologies of 7nm and below reached 77% of wafer revenue. 3nm rose to 30% of wafer revenue from 24% a year ago, 5nm held 33%, and 7nm contributed 11%. 2nm generated its first revenue at 3% of wafer revenue in the quarter its ramp began; management expects the steep part of that ramp in the second half.
CEO C.C. Wei added a demand layer beyond accelerators: agentic AI is reviving CPU demand in AI data centers. Whether the architecture is x86, ARM-based, or RISC-V, he noted these CPU vendors are almost all TSMC customers, and the company is allocating leading-edge supply across CPU, GPU, and XPU demand.
3. Margins beat guidance as the 2nm ramp begins
Gross margin rose 1.5pp QoQ to 67.7%, above the guided range, on cost improvement and a higher capacity utilization rate, partially offset by dilution from overseas fabs. Operating expenses fell to 7.8% of revenue from 8.3% in 1Q26 on operating leverage, taking operating margin up 2.2pp QoQ to 60.3%. Other operating income of NT$5.3bn included insurance claims from the April 2024 earthquake.
Management expects the steep 2nm ramp to cut gross margin by 3 to 4 percentage points in the second half. 3Q26 gross margin is guided to 65-67%, a 1.7pp decline at the midpoint. Overseas fab dilution stays at 2-3pp in the early stages of the expansion and widens to 3-4pp in the later stages. Management named the offsets as strong leading-edge demand, productivity gains, and across-node capacity optimization.
Our model carries a 65.6% FY26E gross margin, and the print supports it. The first half ran at 67.0%; the guided second-half dilution takes the year toward the model's assumption rather than away from it.
4. Capex raised again, with US$100bn more for Arizona
The FY26 capital budget was raised to US$60-64bn, from US$52-56bn in January and closer to US$56bn in April. First-half spending was US$26.8bn, US$15.7bn of it in 2Q26. About 70-80% of the budget goes to advanced process technologies, about 10% to specialty technologies, and 10-20% to advanced packaging, testing, and mask making. C.C. Wei attributed the raise to rising demand and to tool-price inflation.
The Arizona program grew by US$100bn to US$265bn. The addition funds several more wafer fabs for 2nm-and-below technologies plus advanced packaging fabs, probably four or more in total, with the schedule dependent on market conditions. In parallel, TSMC is building 13 leading-edge and advanced packaging fabs in Taiwan and adding three 3nm fabs across Taiwan, Arizona, and Japan, alongside 5nm-to-3nm tool conversions.
Wendell Huang extended the frame: capex in the next three years will be even more significantly higher than in the past three. Packaging capacity remains tight enough that C.C. Wei said it limits customers' growth today, and he welcomed competing packaging capacity such as Intel's EMIB-T as flexibility that supports TSMC's own frontend wafer business.
5. The first half and increased guidance put TSMC on track to run ahead of Street expectations
First-half revenue stands at 46.1% of our FY26E forecast, in line with last year's 46.5% first-half share, and the profit lines run ahead of that pace. Gross profit is at 47.1% of our full-year figure against 45.6% a year ago, EBIT at 47.5% against 45.0%, and attributable NPAT at 49.8% against 44.2%, with the NPAT pace flattered by the Vanguard gain.
The increased full-year guidance now sits above the Street's pre-print expectations. Consensus was pulled on 7 July, before the print, and implies 37.0% FY26 revenue growth in NT$ terms, close to the prior above-30% guide. With management now guiding to slightly above 40% in US dollar terms and the seasonally stronger half still ahead, TSMC is on track to come in ahead of current Street expectations, and we expect consensus to move up toward the new guide as the Street refreshes.
| NT$bn | 1H26 actual | FY26E (ZO) | Implied 2H26E | 1H26 % of FY (1H25 share) |
|---|---|---|---|---|
| Revenue | 2,404.5 | 5,217.0 | 2,812.5 | 46.1% (46.5%) |
| Gross profit | 1,611.6 | 3,420.7 | 1,809.1 | 47.1% (45.6%) |
| EBIT | 1,425.6 | 2,999.0 | 1,573.4 | 47.5% (45.0%) |
| Attributable NPAT | 1,279.0 | 2,566.1 | 1,287.1 | 49.8% (44.2%) |
Source: Company disclosures, Zero One Investment Research forecasts
6. The 3Q26 guide implies a second half near 40% growth
Management guided 3Q26 revenue to US$44.6-45.8bn, a 12% sequential increase and a 37% YoY increase at the midpoint. At the guide's own exchange-rate assumption of NT$32 per US$, the band converts to NT$1,427-1,466bn. Gross margin is guided to 65-67% and operating margin to 56-58%.
The full-year raise frames the fourth quarter as another sequential increase. With the first half up 35.6% YoY and the year now guided to slightly above 40% growth in US dollar terms, the implied second half keeps revenue climbing through 4Q26. Wendell Huang tied the third quarter to continued strong leading-edge demand, including the steep ramp-up of the 2nm technology.
| Guidance item | 3Q26 guide |
|---|---|
| Revenue (US$bn) | 44.6-45.8 |
| Revenue (NT$bn, at NT$32/US$) | 1,427-1,466 |
| Gross margin | 65-67% |
| Operating margin | 56-58% |
| FY26 revenue growth (USD) | slightly above 40% |
| FY26 capex (US$bn) | 60-64 |
Source: Company disclosures, Zero One Investment Research
7. Agentic AI adds CPU demand on top of accelerators
The demand message was unhedged. C.C. Wei said "AI-related demand continues to be extremely robust" and that cloud service providers keep sending very strong signals; he believes demand stays very strong from now through probably 2029-2030 and declined to quantify the supply gap beyond calling it very big.
Agentic AI was the new demand theme on the call. The emergence of agentic AI workloads is reviving CPU demand in AI data centers on top of accelerator demand, and the CPU vendors across x86, ARM-based, and RISC-V architectures are almost all TSMC customers.
Consumer demand was the named soft spot. Management observes consumer and price-sensitive end markets being challenged by rising component prices and macroeconomic uncertainty. In mature nodes, only AI-linked segments such as power management ICs and sensors are in shortage; other commodity areas are not strong.
The technology roadmap stayed on schedule and got two extensions. A14 risk production starts in 2027 with volume production in 2028, and internal test vehicles show close to 90% SRAM yield. A13, with an over 6% die-area saving from a 97% optical shrink, and A12, adding Super Power Rail, are both scheduled for volume production in 2029. 2nm capacity growth is now planned above the roughly 70% 2026-2028 CAGR shown at the technology symposium.
On pricing, C.C. Wei kept the partner frame. He said TSMC does not suddenly raise prices and earns a gross margin sufficient for long-term sustaining expansion, adding that he is "really jealous about memory company's 86% gross margin" and that at 68 he would be happy. TSMC is not financing end customers and does not view customer concentration as a concern, citing new AI players.
8. Free cash flow stayed positive as capex rose
Operating cash flow of NT$783.4bn covered NT$496.0bn of capex, leaving NT$287.4bn of free cash flow even as spending stepped up. Cash and marketable securities ended the quarter at NT$3,518.0bn, about US$110bn, and net cash reserves rose NT$160.0bn to NT$2,486.3bn. The quarter absorbed a NT$188.2bn income tax payment.
Working capital stretched with the ramp. Inventory days rose 7 days QoQ to 87, primarily on the 2nm buildup, and receivable days rose 3 days to 29. Dividends of NT$155.6bn were paid in the quarter; shareholders receive NT$24 per share in 2026, up 33% YoY, and management expects the per-share dividend to keep rising in 2027.
| NT$bn | 2Q26 | 1Q26 | 2Q25 |
|---|---|---|---|
| Cash and marketable securities | 3,518.01 | 3,383.60 | 2,634.43 |
| Accounts receivable | 440.92 | 363.01 | 235.69 |
| Inventories | 385.53 | 311.45 | 304.19 |
| Net PP&E | 4,302.88 | 3,954.68 | 3,386.21 |
| Interest-bearing debt | 1,031.68 | 1,057.26 | 977.89 |
| Net cash reserves | 2,486.33 | 2,326.34 | 1,656.54 |
| Cash from operations | 783.36 | 698.97 | 497.07 |
| Capital expenditures | (496.00) | (350.76) | (297.22) |
| Free cash flow | 287.36 | 348.21 | 199.85 |
| Cash dividends paid | (155.59) | (129.66) | (116.70) |
Source: Company disclosures, Zero One Investment Research
9. The margin path and consumer demand are the named risks
Margin dilution is the most quantified risk. The 2nm ramp takes 3-4pp off gross margin in 2H26, and overseas fab dilution widens from 2-3pp to 3-4pp as Arizona, Kumamoto, and Dresden scale. The offsets to date, cost improvement and across-node optimization, have outrun the dilution; if leading-edge pricing or utilization softens, the FY27 margin frame compresses from both directions at once.
Consumer weakness is a new named risk this quarter. Management flagged rising component prices and macro uncertainty pressuring consumer and price-sensitive end markets, and smartphone revenue fell 4% QoQ. Mature-node demand outside AI-linked power management and sensors is soft. A broader consumer slowdown would test how far AI demand can carry the mix alone.
The capital program raises the fixed-cost base for years. A US$60-64bn FY26 budget, a commitment to still-higher spending over the next three years, and the US$265bn Arizona program all add depreciation through the late decade. Management checks AI data-center buildout progress to confirm chips are not accumulating in inventory; a demand dip in 2027-2028, which C.C. Wei acknowledged he cannot rule out, would meet a much larger cost base.
Concentration and currency remain persistent risks, little changed from prior quarters. North America-based customers are 78% of revenue and the largest AI customers keep growing faster than the rest of the base; management is not concerned, citing new AI players. The NT$ averaged 31.60 in the quarter and the 3Q guide assumes 32; a stronger NT$ would pressure reported margins, a factor management lists among its six profitability drivers.
Financial Forecasts
Consolidated Income Statement
| NT$mn | FY24A | FY25A | FY26E | FY27E | FY28E |
|---|---|---|---|---|---|
| Revenue | 2,894,308 | 3,809,054 | 5,216,965 | 6,723,643 | 8,068,372 |
| Revenue growth | 33.9% | 31.6% | 37.0% | 28.9% | 20.0% |
| Gross profit | 1,624,354 | 2,281,294 | 3,420,739 | 4,286,908 | 5,002,391 |
| Gross margin | 56.1% | 59.9% | 65.6% | 63.8% | 62.0% |
| EBITDA | 1,984,820 | 2,624,188 | 3,708,758 | 4,721,070 | 5,332,819 |
| EBIT | 1,322,023 | 1,936,092 | 2,998,963 | 3,853,836 | 4,389,194 |
| EBIT margin | 45.7% | 50.8% | 57.5% | 57.3% | 54.4% |
| PBT | 1,405,839 | 2,041,663 | 3,091,018 | 3,987,494 | 4,577,112 |
| Income tax | (233,407) | (326,266) | (524,940) | (711,263) | (823,880) |
| Attributable NPAT | 1,173,268 | 1,717,883 | 2,566,078 | 3,276,231 | 3,753,232 |
| Net margin | 40.5% | 45.0% | 49.2% | 48.7% | 46.5% |
Source: Zero One Investment Research Financial Model, Bloomberg
Consolidated Balance Sheet
| NT$mn | FY24A | FY25A | FY26E | FY27E | FY28E |
|---|---|---|---|---|---|
| Cash and equivalents | 2,127,627 | 2,767,856 | 4,154,645 | 5,963,299 | 8,165,745 |
| ST investments | 294,174 | 300,638 | 300,638 | 300,638 | 300,638 |
| Accounts receivable | 272,088 | 281,791 | 385,912 | 497,365 | 596,838 |
| Inventory | 287,869 | 288,109 | 303,144 | 399,558 | 487,197 |
| PP&E | 3,275,108 | 3,735,760 | 4,817,965 | 5,550,732 | 6,107,107 |
| Total assets | 6,691,938 | 7,933,024 | 10,445,797 | 13,199,356 | 16,146,063 |
| ST debt | 59,858 | 136,926 | 136,926 | 136,926 | 136,926 |
| LT debt | 958,429 | 896,062 | 946,062 | 996,062 | 1,026,062 |
| Total liabilities | 2,368,362 | 2,472,229 | 3,111,764 | 3,473,675 | 3,680,523 |
| Total equity | 4,323,576 | 5,460,795 | 7,334,032 | 9,725,681 | 12,465,540 |
Source: Zero One Investment Research Financial Model, Bloomberg
Consolidated Cash Flow
| NT$mn | FY24A | FY25A | FY26E | FY27E | FY28E |
|---|---|---|---|---|---|
| Attributable NPAT | 1,173,268 | 1,717,883 | 2,566,078 | 3,276,231 | 3,753,232 |
| D&A addback | 662,797 | 688,096 | 709,794 | 867,234 | 943,624 |
| Working capital and other | (53,668) | 47,412 | 560,757 | 117,771 | 8,963 |
| Cash flow from operations | 1,887,367 | 2,358,741 | 3,836,630 | 4,261,236 | 4,705,819 |
| Capex | (956,007) | (1,272,411) | (1,792,000) | (1,600,000) | (1,500,000) |
| Cash flow from investing | (944,784) | (1,247,288) | (1,792,000) | (1,600,000) | (1,500,000) |
| Dividends paid | (363,055) | (466,779) | (692,841) | (884,582) | (1,013,373) |
| Cash flow from financing | (327,550) | (421,216) | (657,841) | (852,582) | (1,003,373) |
| Ending cash | 2,127,627 | 2,767,856 | 4,154,645 | 5,963,299 | 8,165,745 |
Source: Zero One Investment Research Financial Model, Bloomberg
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