Review|TSM 2Q26: CapEx Upside Surprise; 3Q26 Gross Margin Below Expectations

Financial Performance and Guidance

TSMC's 2Q26 revenue reached US$40.2bn, meeting our expectations. 2Q26 gross margin increased by 150 bps QoQ to 67.7%, falling below our expectation of 68.4%. 2Q26 operating profit was NT$767bn, matching our expectation of NT$768bn.

TSMC's 3Q26 revenue guidance is US$44.6-45.8bn, slightly beating our US$44.6bn expectation. The 3Q26 gross margin guidance is set at 65%-67%, lower than our expectation of 69.9%. The primary reason for the lower gross margin is that the ramp-up of the 2nm process is faster than expected, which is projected to dilute the company's overall gross margin by 3%-4% in the second half of 2026. During the analyst Q&A session, TSMC revealed that the 2026-2028 CAGR for 2nm capacity is even higher than the initially expected 70%. Additionally, we did not originally expect TSMC to raise prices in Q3 to improve gross margins; we anticipate that TSMC will raise prices at the beginning of each year, as it has historically.

TSMC upgraded its full-year 2026 USD revenue growth guidance to slightly above 40% YoY, exceeding market expectations. While the company did not revise its 2024-2029 AI CAGR guidance of "mid to high 50s", TSMC emphasized that the AI growth trend is definitely becoming "stronger and stronger," showing stronger momentum than the previously stated mid-to-high 50s. C.C. Wei also stated that demand will remain extremely strong starting from today through 2029-2030, as the emergence of the AI industry will impact automotive, humanoid robots, and all other industries.

CapEx Upside Surprise