Taiwan Semiconductor Q4 Earnings: 3nm and 5nm Nodes Lead Topline Growth, Expands Margins, Issues Strong Q1 Outlook

On Thursday, Taiwan Semiconductor Manufacturing Co’s TSM fourth-quarter results beat forecasts, fueled by demand for advanced processor node technologies for artificial intelligence applications.

The contract chipmaker, which supplies chips for Nvidia Corp’s NVDA graphics processing unit (GPU) and Apple, Inc’s AAPL smartphones, guided first-quarter revenue above the consensus.

Taiwan Semiconductor reported fourth-quarter revenue of $26.88 billion (NT$868.46 billion), up 38.8% year-over-year, topping the analyst consensus estimate of $26.28 billion.

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Net income and earnings per share were NT$374.68 billion and NT$14.45 per share ($2.24) versus analyst consensus of $2.23.

In dollar terms, revenue growth was 37.0% year over year and 14.4% quarter over quarter. The top-line performance aligned with the company’s guidance of $26.1 billion—$26.9 billion.

Taiwan Semiconductor said its business was supported by demand for its 3-nm and 5-nm technologies. However, it expects smartphone seasonality to impact the first quarter, partially offset by continued growth in AI-related demand.

The company said 3-nm accounted for 26% of the total revenue, 5-nm accounted for 34%, and 7-nm technologies accounted for 14%. 7-nm and more advanced technologies comprised 74% of the total wafer revenue.

Margin Profile: Taiwan Semiconductor’s AI technology moat helped it expand its fourth-quarter gross margins by 600 bps to 59%, as its 3-nm and 5-nm chips gain traction at the cost of Intel Corp INTC and Samsung Electronics SSNLF, which struggled to transition into advanced nodes. Taiwan Semiconductor’s operating margin expanded by 740 bps to 49%.

Outlook: Taiwan Semiconductor is guided for first-quarter 2025 revenue of $25.0 billion-$25.8 billion versus the $24.97 billion consensus estimate. It expects a gross margin of 57%—59% and operating profit margins of 46.5%—48.5%.

The company earmarked fiscal 2025 capex worth $38 billion-$42 billion (versus $29.8 billion a year ago) amid intensifying geopolitical tensions between the U.S. and China, with the former eying tougher artificial intelligence technology restrictions on the latter, citing national security concerns.

Taiwan Semiconductor stock surged over 103% in the last 12 months.

Investors can gain exposure to semiconductor manufacturing stocks through the VanEck Semiconductor ETF SMH and the iShares Semiconductor ETF SOXX.

Price Action: TSM stock traded higher by 4.86% at $216.85 premarket at the last check on Thursday.

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