Taiwan Semiconductor Manufacturing Company (TSMC) will report second-quarter results on July 16, with attention centered on whether gross margin can stay above 65%. The company has guided for a range of 65.5% to 67.5%, with some estimates, including Morgan Stanley’s 67.4%, near the upper end. Revenue is expected at $39 billion to $40.2 billion, up from $35.9 billion in the first quarter.
Strong margins would reinforce signals that demand tied to artificial intelligence and high-performance computing remains robust. A drop below 65% could raise doubts about how long the current growth cycle can hold.
Demand and pricing power under scrutiny
Recent revenue trends suggest momentum is intact. May sales reached NT$416.975 billion, up 30.1% year on year, bringing revenue for January through May to NT$1.961804 trillion, also up about 30%. High-performance computing accounted for 61% of first-quarter revenue, while advanced nodes of 7nm and below made up 74% of wafer sales.
There are also indications of firm pricing power, with signs the company is preparing customers for higher prices on advanced processes. That stance suggests demand may be strong enough to absorb rising costs.
Costs rise as expansion accelerates
TSMC plans to keep 2026 capital expenditure near the top of its $52 billion to $56 billion range. While this supports long-term capacity for AI-related demand, it also brings higher depreciation that could pressure margins in the near term.
Expansion in the United States, Japan, and Germany adds further cost and complexity. These moves diversify manufacturing risk but increase operational expenses, raising the possibility of margin pressure if growth slows or yields lag.
2nm ramp becomes key growth driver
The company’s next phase hinges on its 2-nanometer process, which entered mass production in late 2025. Capacity for 2nm and A16 nodes is projected to grow at about a 70% compound annual rate from 2026 to 2028, depending on yield improvements and cost control.
How quickly TSMC can scale production and improve yields at these advanced nodes will shape pricing power and profitability across the next cycle.
Market implications of the earnings call
Traders will focus on management commentary around three areas: AI-related chip demand, capacity ramp plans, and margin outlook. The tone of guidance could influence sentiment across the broader semiconductor and AI supply chain.
If TSMC maintains both demand momentum and margins within guidance, confidence in the sector could strengthen. However, cautious signals on costs, customer orders, or production yields may prompt a reassessment of how durable current growth levels are.
The company’s position remains tied to strong AI demand, tight supply of advanced nodes, and heavy capital investment. These same factors also carry risks, leaving its roughly 66% margin level a key benchmark to watch in the coming quarters.
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