TSMC stock in focus as profit jumps 77% and operating margin crushes guidance

TSMC delivered a far bigger earnings beat than investors expected on Thursday, as demand for advanced AI chips pushed quarterly profit above NT$700 billion for the first time.

Net income surged 77.4% to a record NT$706.56 billion, comfortably exceeding the NT$632.6 billion estimates.

Diluted earnings rose to NT$27.25 a share, equivalent to $4.31 per American depositary receipt.

The most impressive operating figure was a 60.3% margin, which came 1.8 percentage points above management’s guidance ceiling.

TSMC stock closed 1.23% up before the earnings.

Profit crushes forecasts, but one unusual gain helped

Second-quarter revenue rose 36% from a year earlier to NT$1.270 trillion, or $40.2 billion.

Net profit increased by roughly NT$308 billion, beating analysts’ weighted forecast by almost NT$74 billion, while the net profit margin expanded to 55.6% from 42.7%.

Part of that bottom-line surprise came from outside TSMC’s core manufacturing business.

Non-operating gains reached NT$95.83 billion, more than triple the previous quarter’s level.

The figure included NT$63.2 billion generated by the disposal and mark-to-market revaluation of shares in Vanguard International Semiconductor.

That qualification matters, but it does not explain away the quarter.

Operating income itself climbed 65.4% to NT$766.6 billion, showing that the company’s factories and pricing delivered exceptional growth even before the Vanguard gain.

Dan Nystedt, a research analyst at TriOrient, told Reuters before the results that TSMC’s revenue showed “AI demand remains healthy”, particularly across advanced manufacturing and CoWoS packaging.

A 60% operating margin reveals TSMC’s real strength

TSMC’s gross margin reached 67.7%, narrowly exceeding its guidance range of 65.5% to 67.5%.

The operating margin of 60.3% was considerably stronger than the company’s forecast of between 56.5% and 58.5%.

Compared with a year earlier, the gross margin increased by 9.1 percentage points and the operating margin expanded by 10.7 points.

TSMC attributed the improvement to cost reductions and higher factory utilisation, which more than offset the continuing dilution from its overseas manufacturing plants.

Operating expenses also fell to 7.8% of revenue from 9.1% a year earlier.

JPMorgan had expected profitability to exceed TSMC’s own outlook, reportedly forecasting a gross margin of 69.5% because of production efficiencies and premium-priced expedited orders.

The actual gross margin missed that aggressive estimate, but the operating result still came well above management’s guidance.

The sales mix shows why profitability was so strong.

High-performance computing increased to 66% of revenue from 61% in the first quarter, with sales from the platform rising 20% sequentially.

TSMC also separately disclosed 2-nanometre revenue for the first time, with the new process contributing 3% of wafer sales.

The 2nm and 3nm technologies together generated one-third of wafer revenue, while advanced nodes accounted for 77%.

Guidance will determine whether the stock rally lasts

The earnings call now carries greater importance than the headline profit figure.

Investors will want to know whether TSMC can sustain margins near 60% as 2nm production expands and overseas factories account for a larger proportion of capacity.

Bank of America analyst Haas Liu said in a note that supply-chain checks continued to point to a strong AI demand pipeline.

Liu believed TSMC could raise its full-year revenue-growth forecast from the existing outlook of more than 30% and potentially increase capital expenditure to about $58 billion, above the current $52 billion-to-$56 billion range.