TSMC: A Winner That Takes All, Despite Tariffs
TSMC’s AI growth machine is just getting warmed up. Tariffs & trade wars hardly made a dent.
Semiconductors are at the center of a trade war that is unfolding but the AI trade is far from over. Our research helps investors navigate the volatile political environment while continuing to dig deep into the AI beneficiaries that are durable & stand to win long-term.
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«The 2-minute version»
🌪️ Trade Winds? TSMC Just Sways, Doesn’t Snap: Despite the global tariff turmoil that has plagued investor optimism since March, TSMC still managed a 35% YoY revenue surge in Q1—hardly a stumble. Management’s steady tone during Q1 made it clear that AI demand remains relentless. The HPC segment, which powers AI workloads for TSMC’s superstar clients like Nvidia, kept pulling away from the pack even as smartphones lagged. TSMC isn’t immune to macro noise—but it's definitely noise-canceling.
🧬 AI Chips Getting Smaller, Smarter (And More Profitable): TSMC’s 3-nanometer chips are now 22% of wafer revenue—up from just 9% a year ago. These tiny but mighty chips power Nvidia’s latest Blackwell GPUs and represent the bleeding edge of semiconductor technology. The even more advanced 2nm node is on track for volume production in H2, with revenue projections for the 2nm node estimated to climb 334%😳 next year. TSMC isn’t just keeping up with Moore’s Law—they’re sprinting ahead of it.
💰 If You Build It (With $40B), AI Will Come: TSMC is going full throttle on capital expenditure—planning to raise capital spending by 38% to over $40B this year. Nearly 70% is earmarked for advanced nodes like N7 and below, showing their deep commitment to long-term growth. That capex tends to precede revenue surges by 9-12 months, suggesting another wave of upside might just be loading, further reaffirming management’s guidance for a mid-40% CAGR growth in AI revenue over the next five years.
🧠 AI Foundry, Diplomatic Powerhouse: TSMC isn’t just building chips—they’re building geopolitical influence. With a $100B Arizona expansion and a possible 30% price hike in the pipeline, they’re showing they can absorb tariff shocks and still flex pricing power. Despite trade war jitters and political uncertainty, TSMC holds a unique “too strategic to fail” card. Read below to unlock our valuation model and price target.
🎥Let’s Set The Stage
Over the last month, tariffs, geo tensions, trade wars, export restrictions, and then the possibility of world orders getting rearranged have dampened investor optimism that AI ushered in a few years ago.
So when a company like Taiwan Semiconductor TSM 0.00%↑, supplier of the most advanced AI chips in the world, arrives back on the current scene and reiterates the unwavering demand for its AI product & platform against all odds, we believe investors need to stand up and notice the underlying pillars of its strength.
In our view, Taiwan Semiconductor’s Q1 CY25 results offered a refreshing change from the pessimism that has gripped the markets, like a ray of light in a damp, dark forest. The confidence of the company’s management reminded us of the resilience that separates great companies from the rest.
TSMC (Taiwan Semiconductor) is raising the stakes, not throwing in the towel. They’re finding ways when roads are being shut down and forging relationships when ties are getting strained to support their own customers’ AI goals. TSMC isn’t just serious about winning AI. They’re keen to win diplomacy as well.
We’re impressed by TSMC’s Q1 results and are increasing our exposure in the company.
AI Continues Its Ramp Up At TSMC, Against All Odds
Through the first quarter of 2025, TSMC reported consolidated revenues of NT$839.3B, or $25.5B, 35% higher than revenues reported a year ago. These are impressive revenue growth rates being reported by the Taiwanese semiconductor fabrication company that manufactures leading-edge chips for almost every major chip company in the world.
While the company did beat its own revenue guidance range of $25-25.8B issued in January, which coincided with the midpoint of consensus estimates of ~$25.42B, TSMC ended up notching its smallest revenue beat of 0.2% in terms of beat magnitude, as seen in the chart below.
What is truly amazing is that the whipsaws caused by global trade uncertainty in Q1 appeared to make almost no dent in TSMC’s HPC (high-performance computing) platform revenues, the segment that records a majority of the sales incurred from manufacturing leading-edge chips that are eventually used by Nvidia NVDA 0.00%↑, AMD AMD 0.00%↑, Qualcomm QCOM 0.00%↑, etc.
Although TSMC’s Smartphone platform reported weakness in Q1, the strength in TSMC’s HPC segment is worth noting since it continued to pull away from the rest of the other platforms and is now a $60B business on an annualized basis based on Q1 CY25 results.
A look beneath the hood of its results indicates that demand for TSMC’s leading edge shows no signs of stopping. Chips manufactured by the Taiwanese chipmaker on its N3 or 3-nanometer process node (technology) contributed to 22% of TSMC’s wafer revenue, significantly higher than the 9% contribution it made to TSMC’s wafer revenues a year ago.
TSMC’s N3 process technology is currently the most advanced process node in the world, currently in production, on which the leading AI chips like Nvidia’s Blackwell chips are being made. Meanwhile, chips made on the N5 and N7 process nodes accounted for 36% and 15% of TSMC’s wafer revenue, respectively, in Q1 CY25, as can be seen below.