TSMC’s Recent Success Explained
Taiwan Semiconductor Manufacturing Company (TSMC) has truly been one of the standout companies in recent years. You might not be closely following brands like Nvidia or Palantir Technologies, but TSMC is certainly riding the wave of the artificial intelligence (AI) surge, notable for its chip manufacturing prowess.
Since the introduction of ChatGPT in early 2023, TSMC’s stock has skyrocketed by 252%. This remarkable growth is coupled with exceptional financial results, highlighting rapid revenue increases. The company’s margins have improved, solidifying its competitive edge. As the largest semiconductor manufacturer globally, TSMC has become an invaluable ally for chip designers such as Nvidia, who depend on its production capabilities.
Continuing this upward trajectory, TSMC reported a 34% revenue increase in August. The third quarter’s revenues reached $33 billion, rising from $31.8 billion, showcasing a strong operating profit margin of 45.5% to 47.5%.
Let’s delve into how TSMC is generating its profits and what this might indicate about its future.
1. Growing Importance of North America
North America has always been a crucial market for TSMC, but its significance has surged in recent years.
In the second quarter, North America represented 75% of TSMC’s revenue, climbing from 56% in early 2020. This shift is largely attributed to the establishment of a major data center in the region, with notable contributions from companies like Apple and Nvidia, both based in the US.
Additionally, TSMC has been identified as a key manufacturing partner by both the Biden and Trump administrations, reflecting the US’s efforts to bolster domestic semiconductor production to ensure adequate chip supplies.
Currently, TSMC is constructing several facilities in the United States and benefiting from billions in grants through the Chips Act. Meanwhile, its market share in China has plummeted from 22% to 9% amid slower economic growth and increased US export regulations.
2. Advancements in Technology
Another significant transformation in TSMC’s business model involves the increasing demand for advanced chips in high-performance computing.
In the second quarter, chips defined as being below 7 nanometers (nm) contributed 64% of TSMC’s revenue, a notable rise from just 35% at the start of 2020. Currently, 60% of the company’s revenue comes from these advanced nodes, highlighting not only their cutting-edge technology but also the growing need for robust chips. TSMC is preparing to begin production of 2nm chips soon.
3. High-Performance Computing Takes Center Stage
Once upon a time, smartphones were TSMC’s primary focus. However, the industry has now shifted towards high-performance computing, with chips from companies like Nvidia that cater to data centers.
From early 2020 to mid-2025, revenue from high-performance computing has surged from 30% to 60%, while sales from smartphones have dipped from 49% to 29%. This doesn’t necessarily indicate a downturn for TSMC, but rather reflects the maturation of the smartphone sector.
It’s important to note that the increasing revenue share from high-performance computing is driven by substantial investments in AI and data centers from hyperscale and other companies.
Implications for TSMC
In contrast to competitors like Samsung and Intel, which have faced challenges lately, TSMC seems to have aligned perfectly with key trends in the semiconductor field.
For investors, TSMC’s stock, while priced at a 28 price-to-earnings ratio, is arguably more affordable than many peers in the AI segment. With its established chip manufacturing strengths and strong competitive position, TSMC looks well-equipped to thrive in the coming years.
