TSM’s Record 4Q25 and the Road to 2029

Taiwan Semiconductor Manufacturing Company (TSMC), better known as TSM, occupies a position in the global economy that is practically unparalleled. TSM is essentially the foundry of the tech world and is involved in the production of the majority of the most complex chips. As the pioneer of the pure-play foundry model, TSM does not design or sell its own branded chips. Instead, it serves as the invisible engine behind every major tech giant, from Apple and NVIDIA to AMD and Qualcomm. If you need a complex chip made, you’re likely going through TSM.

Yesterday, TSM released its fourth-quarter and full-year results for 2025. The numbers were not just a beat, they were a pretty clear signal that the AI-driven industrial revolution is accelerating, with TSM standing as its primary gatekeeper with limited production capacity that they’re quickly working to expand.

What TSM Does: The Pure-Play Pioneer

As a potential investor, it is essential to understand TSM’s unique moat. By focusing exclusively on manufacturing, TSM avoids competing with its customers. This pure-play approach has allowed it to amass a staggering 305 distinct process technologies, manufacturing over 12,600 products for 534 different customers in 2025 alone.

TSM’s dominance is built on process nodes, the microscopic measurements of transistors on a chip. As these nodes shrink (from 7nm to 5nm to 3nm and beyond), the chips become more powerful and energy-efficient. In 4Q25, TSM’s leading-edge nodes (7nm and below) accounted for a massive 77% of total revenue, illustrating that the world’s most advanced computing needs are very reliant on this one company.

4Q25 Earnings: A Record-Breaking Finale

TSM’s fourth-quarter results were nothing short of spectacular, comfortably exceeding both management’s previous guidance and Wall Street’s expectations.

The Headlines

• Revenue: TSM reported consolidated revenue of NT$1,046.09 billion (approximately US$33.73 billion). This represents a 20.5% increase year-over-year and a 5.7% increase from the third quarter.
• Earnings Per Share (EPS): Diluted EPS came in at NT$19.50 (US$3.14 per ADR), a 35% jump from the same period last year.
• Net Income: Net profit reached NT$505.74 billion, with a net profit margin of 48.3%.

Performance vs. Guidance

In October 2025, TSMC guided for 4Q revenue between $32.2 billion and $33.4 billion. The actual result of $33.73 billion beat the high end of that range. More impressively, the company’s profitability margins surged. Gross margin hit 62.3%, beating the guided range of 59–61%, driven by cost improvement efforts, high capacity utilization, and a favorable product mix heavily weighted toward the premium 3nm node.

The Engines of Growth: HPC and 3nm

The star of the 4Q25 report was the High-Performance Computing (HPC) segment. HPC, which includes the AI accelerators used by NVIDIA and the server processors used in massive data centers, now accounts for 55% of TSMC’s revenue. For the full year 2025, HPC revenue grew by a staggering 48% and could have grown faster if capacity allowed it.

The node transition is also progressing faster than expected. The 3-nanometer (3nm) technology, the most advanced in mass production today, accounted for 28% of wafer revenue in the fourth quarter, up from just 6% in 4Q23. As 3nm continues to ramp and 2nm production looms on the horizon, TSM is effectively widening the gap between itself and competitors like Intel and Samsung.

Looking Forward: 2026 and Beyond

If the 4Q25 results were a look at a successful past, the management’s projections for 2026 and beyond were a bold statement of future confidence.

2026 Guidance

For the first quarter of 2026, TSM expects revenue to climb further to between $34.6 billion and $35.8 billion. For the full year 2026, the company is projecting revenue growth of close to 30% in US dollar terms. This is a remarkably high growth rate for a company of TSM’s scale, suggesting that the AI cycle is far from peaking which is good news for a variety of companies in this space and likely a sign that the performance of this sector isn’t stopping anytime soon.

The Long-Term Vision (2024–2029)

TSMCs Chairman and CEO, C.C. Wei, provided a long-term roadmap that should make investors take note. Between 2024 and 2029, the company expects:

1. Revenue CAGR: To approach 25% in US dollar terms which yields a 29 FY revenue that’s just about 9% higher than current expectations.
2. Long-term Gross Margin: To remain at 56% or higher through the cycle.
3. Return on Equity (ROE): To stay in the high-20s percentage.

The Capex Plan: A $56 Billion Bet

Perhaps the most important figure in the earnings release was the 2026 capital expenditure (Capex) budget. TSM announced it plans to spend between $52 billion and $56 billion in 2026.

To put this in perspective, that’s up from $30B in 2024 and around $41B in 2025. This capital will be funneled into:

• Capacity Expansion: Particularly for 2nm and 3nm nodes to meet insatiable AI demand.
• Advanced Packaging: As chips become more complex, TSM’s CoWoS (Chip on Wafer on Substrate) packaging technology has become a bottleneck for AI chip supply. The massive Capex indicates a significant push to resolve this.
• Global Diversification: Funding the construction of advanced fabs outside of Taiwan.

Geographic Expansion: The U.S. and Beyond

A significant portion of TSMC’s strategy involves de-risking its manufacturing footprint. Historically, TSM’s most advanced chips were made exclusively in Taiwan. However, due to customer demand and political pressure, the company is expanding globally:

• Arizona, USA: TSM is making significant progress on its three planned fabs in Arizona. The first fab is expected to begin production of 4nm chips in early 2025, with the second and third fabs bringing 3nm and 2nm capabilities to U.S. soil later this decade.
• Japan and Germany: Expansion in Kumamoto, Japan (Specialty nodes) and Dresden, Germany (Automotive and Industrial) ensures that TSM remains the preferred partner for global supply chains that are increasingly wary of over-concentration in the Taiwan Strait.

The Elephant in the Room: The China Risk

While the financials are flawless, the China risk remains the primary drag on TSM’s valuation. Taiwan is a geopolitical flashpoint. Any escalation in tensions between Beijing and Taipei could theoretically disrupt the world’s supply of advanced semiconductors overnight.

Furthermore, TSM must navigate increasingly complex U.S. export controls. Revenue from China-based customers stood at 9% in 2025. While TSM has successfully backfilled any lost China revenue with massive demand from North America (which accounts for 75% of revenue), the threat of more stringent trade restrictions or a blockade remains a systemic risk that no amount of Capex can fully mitigate. However, the recent updates to the Taiwan trade agreements are increasingly tied around making sure that TSM continues to invest in the U.S. and continues to be able to ship their chips to the U.S. as well. It seems like TSM is one of Taiwan’s biggest geopolitical assets when it comes to these types of negotiations.

Valuation: Is the Stock Still a Buy?

Following the 4Q25 release, TSM shares have naturally seen a significant uptick. This leads to the ultimate question for investors: Is it too late to buy?

The Bull Case

Despite the recent rise, TSM’s valuation often looks surprisingly reasonable compared to the some AI darlings especially given how integral it is to the production of semiconductors. TSM trades at a 27x forward earnings multiple which isn’t too bad.

When you consider that TSMC is growing revenue at 25-30% with a 60%+ gross margin and a near-monopoly on the manufacturing of the world’s most important technology, the stock looks like a relative bargain. If the company achieves its 25% CAGR through 2029, its earnings power will likely be at least double of what it is in 2025 by the end of the decade.

The Bear Case

The bear case is almost entirely geopolitical. Investors who avoid TSM do so not because they doubt the company’s execution, but because they fear a black swan event in the Taiwan Strait. Additionally, the massive Capex ($56B) is a double-edged sword; if AI demand were to cool unexpectedly, TSMC could find itself with expensive, underutilized capacity, leading to a margin crunch. However, I’m quite certain that even if the AI cycle cools, something else will be there to fill the void in a world so dependent on technology and any dips will just be a good time to buy TSM.

Final Verdict

For long-term investors, TSM remains one of the highest-quality companies in the world. It is the literal foundation of the digital age. The current 4Q25 results prove that the company is not only meeting the AI moment but is actively shaping it.

While the geopolitical discount will likely always exist, the sheer indispensability of TSM provides a different kind of safety. If TSM goes down, the entire global tech sector goes with it. On top of that, their expansion beyond Taiwan for their fabs will lessen that geopolitical risk at least a little bit in the future. For those willing to stomach the geopolitical volatility, the combination of 30% growth, solid cash flow (~$32B Free Cash Flow in 2025 and growing quickly), and a dominant technological lead makes TSM a compelling buy and hold candidate even after its recent rally.

Disclaimer: I am long TSM and may be long other stocks mentioned in this article in the near future. This article is for informational purposes only and does not constitute financial advice. Investors should perform their own due diligence or consult with a financial advisor before making any investment decisions.