Taiwan Semiconductor Manufacturing Co (TSMC), the world's largest dedicated chip foundry, reports second quarter earnings on Thursday, 17 July before the opening bell on Wall Street. TSMC’s earnings will be not just crucial to the stock’s momentum YTD but also an important guide for the wider AI and semiconductor space. AI demand is powering the top line and could see management raise the full-year outlook, but there are questions about margins as costs rise. Here’s what you need to know.

Revenues Soar

Ahead of the detailed Q2 report card the firm revealed last week that monthly June sales of $9 billion. This was up 27% from the year-earlier period, but down over 17% from May. Nevertheless, it left first half sales up 40% year-on-year at $60.5bn. For Q2 TSMC’s revenues hit $31.93bn, which was ahead of forecasts and 39% ahead of the same quarter a year ago.

Sales growth, therefore, remains robust despite currency headwinds and tariff worries – surging AI demand is the fuel for the engine. TSMC is seeing surging demand for AI accelerators and advanced nodes like 3nm and 5nm, which account for 73% of its wafer revenues now. 

In its Q1 earnings report in April the company offered a bullish outlook on strong AI demand. Its expansion into high-performance computing is expected to boost the top line in Q2, while tech advances are supporting its push into automotive, Internet of Things and consumer electronics. Its multi-project wafer processing service, which helps customers reduce their costs, is also expected to lift revenues.

The HPC business accounts for 59% of revenues, driven by demand from clients like Nvidia, Broadcom and AMD. The smartphone business accounts for 28% of revenues – with demand driven by Apple and Qualcomm.

Tariff Turmoil?

TSMC is very much in the eye of the tariff storm, with US president Donald Trump long stating that Taiwan had stolen the US chip industry. Trump has threatened industry-specific tariffs for semiconductors but has yet to offer further details. In April Trump had announced a 32% blanket tariff on most Taiwanese goods. As of Monday, 14 July, Taiwan was said to be entering a key final stage of agreeing a trade deal with the US. 

Tariffs "do have some impact on TSMC, but not directly", CEO CC Wei said in June at the annual shareholder meeting. Nevertheless, TSMC has been investing billions in the US in an attempt to stay on the right side of the president – its $165bn US fabrication investment should increase its chances of receiving a tariff exemption.

Margins in Focus

But investors will want to see if the company can control its costs with this project. Investors will want to know what margin impact is going to be felt after last quarter’s announcement of an additional $100bn to build five more fabs in the US, on top of its already-announced $65bn investment in Arizona. Margins may also come under pressure due to the Taiwan dollar’s appreciation against the US dollar this year. The company has said before that a 1% appreciation in the Taiwan dollar dents margins by 0.4 percentage points – Taiwan’s dollar is up 12% against the greenback YTD and the roughly 7% rise in Q2 suggests a negative impact of about 3 percentage points. TSMC guided for gross margins of 57-59% and operating margins of 47-49% - just how effectively did it manage currency risk to keep within these envelopes?

What to Expect

TSMC is expected to report a 52% rise in quarterly profit, with net income rising to $12.9bn, according to an LSEG estimate. The company reports during the Asian session on Thursday and will provide third-quarter guidance on an earnings call scheduled for 06:00 GMT.

Analyst View

Morgan Stanley has come out with a bullish view on TSM stock ahead of earnings, arguing that surging AI demand will see it raise its full-year revenue guidance for 2025. The banks says that after the preliminary revenue numbers for Q2 “the likelihood of full-year revenue raise is now higher,” and notes that 27% year-on-year revenue growth in 2025 looks “quite achievable.” TSM stock trades at about 24x forward earnings, below Nvidia’s 38x and below the roughly 27x for the chip sector.