The chipmaker’s outlook for Q2 shows no signs of slowing down.
Taiwan Semiconductor (NASDAQ:TSM) stock rose more than 3% on Thursday morning after the foundry chip maker surprised investors with its earnings and outlook.
This has been a difficult period for most chip stocks, for a few reasons. One, after two years of high returns, many were wildly overvalued. But secondly, they have struggled on concerns over tariffs and the trade war between the U.S. and China.
But with its Q1 earnings, Taiwan Semiconductor provided some assurance for investors that it can navigate the volatile environment.
The largest chip foundry, meaning they make chips for other companies and don’t design them, posted earnings Wednesday after the closing bell that beat estimates.
The firm generated net sales of $839 billion New Taiwan dollars (NT), which exceeded estimates of NT$835 billion. That was up nearly 42% year-over-year. In U.S. dollars, that equates to $25.3 billion in revenue.
Earnings rise 60% in Q1
Net income came in at NT$361.6 billion in the quarter, of NT$13.94 per share. That marked a 60% year-over-year surge and topped estimates of NT$354.1 billion.
Further, the firm posted a high 58.8% gross profit margin, which is how much it makes on a dollar of revenue after eliminating the costs of goods sold. Also, it had a 48.5% operating margin, which is how much profit is made after subtracting all production costs, including wages.
Taiwan Semiconductor’s 3-nanometer chips accounted for 22% of the total wafer revenue, while the 5-nanometer chips accounted for 36% and the 7-nanometer made up 15% of sales. The lower the nanometer, the more efficient and powerful the chips. But all are advanced technologies and can handle complex AI processing. These advanced chips accounted for 73% of total wafer revenue.
Its clients include the largest AI and chip firms, including Apple, NVIDIA, AMD, Broadcom, and Qualcomm.
“Our business in the first quarter was impacted by smartphone seasonality, partially offset by continued growth in AI-related demand,” Wendell Huang, senior VP and chief financial officer of TSMC, said.
No signs of tariff impact
The firm’s outlook for the second quarter helped boost the stock on Thursday, as many investors feared a negative impact from tariffs.
“Moving into second quarter 2025, we expect our business to be supported by strong demand for our industry-leading 3nm and 5nm technologies,” Huang said. “While we have not seen any changes in our customers’ behavior so far, uncertainties and risks from the potential impact from tariff policies exist. We will continue to closely monitor the potential impact on the end market demand and manage our business prudently.”
The outlook calls for revenue to be in a range of US$28.4 billion to US$29.2 billion, which would be up 14% over Q1 at the midpoint. That is a higher revenue total than analysts had anticipated.
Also, the gross profit margin is expected to be between 57% and 59%, while the operating profit margin is targeted at 47% and 49%. Both are within the range of the Q1 percentages.
TSMC also expects mid-20% sales growth in 2025, according to Barron’s.
Last November, Taiwan Semiconductor announced that it was building three plants in Arizona – an investment valued at $65 billion. Then last month, the company said it planned to invest another $100 billion in U.S. manufacturing facilities.
“With the success of our first fab in Arizona, along with needed government support and strong customer partnerships, we intend to expand our U.S. semiconductor manufacturing investment by an additional $100 billion, bringing our total planned investment to $165 billion,” TSMC Chairman and CEO C.C. Wei said.
Taiwan Semiconductor stock is down around 22% YTD, but it is relatively cheap, trading at 21 times earnings.
It has a median price target of $243.50 per share, which would represent a 60% increase over its current price. This is a stock to put on your radar.
