Nvidia-Supplier Taiwan Semiconductor On A Roll, Profit Explodes With Strong Margin Growth

Taiwan Semiconductor Manufacturing Co. (TSM) stock soared Thursday after the contract chipmaker delivered second-quarter results that blew past analyst expectations, driven by insatiable global demand for its advanced processor technologies essential for artificial intelligence applications.

As a key supplier to tech giants like Nvidia NVDA for its graphics processing units (GPUs) and Apple AAPL for its smartphones, the company’s strong results underscore its critical role in the global technology ecosystem. The company also provided an optimistic revenue forecast for the third quarter, further boosting investor confidence.

Taiwan Semiconductor reported quarterly net sales of $30.07 billion (933.79 billion New Taiwanese dollars), up 38.6% year-over-year (Y/Y), topping the analyst consensus estimate of $30.04 billion. Net sales grew 11.3% quarter over quarter (Q/Q).

Also Read: What To Expect From Taiwan Semiconductor Q2 Performance?

Net income and earnings per share were $398.27 billion New Taiwanese dollars and 15.36 New Taiwanese dollars per share (or $2.47), up by 60.7% Y/Y, topping the analyst consensus estimate of $2.37.

In U.S. dollar terms, revenue growth was 44.4% Y/Y and up by 17.8% Q/Q. The top-line performance topped the company’s guidance of $28.4 billion-$29.2 billion.

The company said 3-nm accounted for 24% of the total revenue, 5-nm accounted for 36%, and 7-nm technologies accounted for 14%. Advanced technologies (7nm and below) accounted for 74% of total wafer revenue.

By platform, High-Performance Computing (HPC) and Smartphone represented 60% and 27% of net revenue, respectively, while IoT, Automotive, DCE, and Others each represented 5%, 5%, 1%, and 2%.

From a geographic perspective, revenue from customers based in North America accounted for 75% of total net revenue in 2Q25, while revenue from China, Asia Pacific, Japan, and EMEA (Europe, Middle East, and Africa) accounted for 9%, 9%, 4%, and 3% of total net revenue, respectively.

Margin Profile

Taiwan Semiconductor’s AI technology moat helped it expand its quarterly gross margins by 540 bps to 58.6%. The operating margin expanded by 710 bps to 49.6%.

CFO Wendell Huang expects its business to be supported by strong demand for its leading-edge process technologies for the third quarter.

During the second quarter, net cash generated from operating activities totaled 497.07 billion New Taiwanese dollars ($17.05 billion). Capital expenditures for the company on a consolidated basis totaled $9.63 billion in the second quarter of 2025. The company’s cash and marketable securities stood at $90.36 billion at the end of the quarter.

Outlook

Taiwan Semiconductor guided third-quarter 2025 revenue of $31.8 billion to $33.0 billion versus the $32.7 billion analyst consensus estimate. It expects a gross margin of 55.5% to 57.5% and operating profit margins of 45.5% to 47.5%.

In a notable development, Taiwan Semiconductor’s Chairman, C.C. Wei, announced a significant increase in the company’s investment in U.S. chip manufacturing in March. This new commitment of $100 billion came in addition to the $65 billion previously pledged in April 2024 for three fabrication plants in Arizona, one of which was already operational.

Taiwan Semiconductor stock gained over 20% year-to-date and 57% in the last three months. During the same periods, the PHLX Semiconductor Index (which includes Taiwan Semiconductor) gained over 14% and 48%.

The stock also got a boost from this week’s reports indicating the Trump administration’s plans to announce roughly $70 billion in AI and energy investments in Pennsylvania, and the U.S. government’s move to ease certain chip export restrictions to China.

However, the company acknowledged in June potential future headwinds due to President Donald Trump’s trade policies, particularly his threats of “reciprocal tariffs” on Taiwan. Taiwan is currently subject to 32% tariffs imposed in April and is engaged in trade discussions with the U.S. Furthermore, Trump previously indicated the possibility of additional tariffs on semiconductors.

According to Reuters, the company noted that key client Nvidia had recently been allowed by the U.S. government to resume sales to China of its H20 AI chip. Taiwan Semiconductor Chief Executive C.C. Wei told a press conference, “China is a big market, and my customer can continue to supply the chip to the big market, and it’s very positive news for them and in return it’s very positive news for Taiwan Semiconductor.”

However, Wei indicated that the momentum for fourth-quarter earnings might differ. “We are taking into consideration the possible impact of tariffs and a lot of other uncertainties, so we are becoming more conservative,” he said, though he added that Taiwan Semiconductor had yet to see any changes in customer behavior so far.

Price Action: TSM stock is trading higher by 4.10% to $247.30 premarket at last check Thursday.

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