TSMC Earnings Review: Q2 2025
$TSM
Hi everyone, I’m trying this new format for quarterly earnings review. If you find it valuable, please let me know by giving this article a like or leave a comments. If this works, will try to provide the same for my other positions this earnings season.
Overview
Taiwan Semiconductor Manufacturing Co. (TSM) reported Q2-25 results on 17 July 2025. Revenue climbed to TWD 933.8 bn (≈ US$30.1 bn) while diluted EPS reached TWD 15.36, up ~39 % and 60.7 % year-on-year respectively . Both topline and bottom-line exceeded consensus, beating by 1.6 % and 5.9 %, respectively .
Snapshot
Financial Results – Highlights
Leading-edge mix surged to 74 % of wafer sales, with 3 nm contributing 24 % in TSMC’s third full quarter of volume production .
AI/HPC demand drove sequential strength; HPC platform revenue rose 14 % QoQ, outweighing FX headwinds and an early ramp-dilution from overseas fabs .
Gross margin held at 58.6 %, only 20 bps lower QoQ despite a 220-bps NT$ appreciation drag and ~100-bps dilution from Arizona startup costs .
Operating leverage plus a richer node mix lifted operating margin to 49.6 % .
Free cash flow remained robust: TWD 497 bn from operations versus TWD 297 bn CapEx, shrinking cash by just 1 % even after a TWD 117 bn dividend .
Outlook
Management guides Q3-25 revenue of US$31.8–33.0 bn, +8 % QoQ and +38 % YoY at the midpoint, with gross margin of 55.5–57.5 % . This implies revenue 5–7 % above Visible Alpha consensus, but a 200-bps margin compression as overseas-fab dilution and further NT$ strength persist. Full-year revenue growth outlook was raised to “around 30 % in U.S. dollars” -- ~5 pts above the Street.
Strategy & Execution
Capacity build-out accelerates: 11 new fabs planned in Taiwan plus a six-fab, advanced-node cluster in Arizona; 30 % of 2 nm+ capacity will sit stateside .
Technology road-map intact: N2 volume starts 2H-25 with N2P and A16 (SPR) extensions slated for 2H-26; management reiterates better profitability for N2 vs N3 .
Advanced packaging: CoWoS capacity is being expanded “at full throttle” to narrow supply gaps through 2026 .
External Factors
Currency remains the single-largest swing factor; every 1 % NT$ move shaves ~40 bps off GM .
Overseas-fab dilution expected at 2–3 % of GM annually through 2027 .
Tariff policy uncertainty could temper consumer-oriented demand in 2H-25 , while sovereign-AI spending keeps HPC orders strong.
Valuation
At US$245.6 the ADR trades at~26× FY-25 EPS vs a five-year average near 23×. In my view this is still a highly attractive entry multiple for an essential AI shovels maker growing 30%.
Takeaway
TSMC is on track, I was even able to slightly upward adjust my valuation model. Including dividends, I estimate that TSMC can CAGR at >15% in the long run.