TSMC's AI-Led Q4 Revenue Surge Confirms Growth Narrative Amid Mounting Cost Concerns

What happened

TSMC's fourth-quarter revenues are poised to show significant expansion, driven by robust demand for advanced AI chips from key customers like Nvidia. However, escalating costs, including higher electricity tariffs and expenses from overseas fab expansions, likely pressured profitability during the period. The company's recent Q4 2025 revenue of T$1.046 trillion, up 20.45% year-over-year, aligns with this AI-driven uptick and underscores its dominant role in the semiconductor foundry market. Despite cost headwinds, gross margins have remained near 60%, supported by high utilization at advanced nodes and efficient scale. Looking ahead, sustained AI/HPC demand and N2 node ramps are expected to fuel growth, but investors must scrutinize margin resilience against rising operational expenses.

Implication

TSMC's Q4 performance reinforces its status as a primary beneficiary of the AI infrastructure boom, validating base-case assumptions of ~20-25% annual revenue growth. Nonetheless, increasing costs, such as energy price hikes and overseas fab investments, threaten to erode the ~60% gross margins that underpin current valuations. With the stock trading at ~27x earnings and crowded bullish sentiment, any disappointment in margin guidance or AI demand sustainability could trigger volatility. Key near-term catalysts include 2026 revenue and gross margin forecasts from upcoming earnings, which will test the thesis's durability. Prudent positioning involves accumulating on pullbacks toward the $300 attractive entry and trimming above $400, balancing growth prospects with valuation sensitivity.

Thesis delta

The new article confirms the AI-driven revenue boost anticipated in the DeepValue report, adding no substantive new information but highlighting cost pressures already embedded in the risk assessment. This reinforces the existing thesis of a potential buy with cautious optimism, emphasizing the need to monitor gross margin trends and AI demand persistence. No material shift is warranted; the call remains contingent on 2026 guidance meeting thresholds of ≥55% gross margin and ≥20% revenue growth.