Wall Street comments on TSMC's financial report: Capital expenditure and profit margin guidance are too "explosive," anyone hoping for a pullback will be disappointed

In the face of TSMC's significantly better-than-expected financial report, Goldman Sachs analyst Sean Johnstone stated: "Anyone expecting a pullback will be disappointed."

TSMC's latest financial report showcased a strong performance that caught the market's attention: the gross margin for the fourth quarter broke 60% for the first time, with a net profit of $16 billion, exceeding analyst expectations. More critically, the company has significantly raised its capital expenditure guidance for 2026 to $52-56 billion, nearly 40% higher than previous expectations, clearly signaling its full commitment to the AI chip sector.

The company's Senior Vice President and Chief Financial Officer, Huang Renxiao, emphasized that the growth in performance is primarily driven by strong demand for advanced process technologies, and this momentum is expected to continue into the new year.

Sean Johnstone's assertion reflects the general consensus on Wall Street: TSMC, with its technological leadership and capital moat, will continue to dominate the global AI chip manufacturing landscape. This performance and guidance, described by the market as "explosive," not only demonstrates the company's confidence in the long-term growth of AI demand but also further solidifies its indispensable core position in the global semiconductor supply chain.

Capital Expenditure Significantly Exceeds Expectations

TSMC has significantly raised its capital expenditure guidance for 2026 to $52-56 billion, a figure that not only surpasses the general expectations of sell-side analysts of $45-46 billion but also exceeds the buy-side institutions' expectations of $47-52 billion. A report from JP Morgan noted that the company further hinted that capital investment levels over the next three years will be "significantly higher," thereby reducing market expectations for a potential pullback in recent expenditures.

According to a report from Bank of America Merrill Lynch, TSMC has raised its revenue compound annual growth rate (CAGR) guidance for 2024 to 2029 from the original 20% to 25%, and has increased the revenue CAGR expectation for its AI accelerator business from the original "mid-40%" to "mid-50%." The company expects its total revenue for 2026 to achieve nearly 30% year-on-year growth, higher than the market's original expectation of a 20% mid-range growth rate.

In response to market concerns about whether there is a bubble in the "AI investment cycle," TSMC Chairman and CEO Wei Zhejia candidly stated: "I am also nervous about this... but the demand for AI is real, not only real but is also integrating into daily life." The company's analysis suggests that the current key bottleneck restricting the development of the AI industry lies in TSMC's front-end wafer capacity, rather than power supply or financing conditions, and that capacity tightness is primarily reflected in the wafer manufacturing stage, rather than the back-end packaging.

Structural Improvement in Gross Margin, Profitability Exceeds Expectations

TSMC's gross margin for the fourth quarter reached 62.3%, not only higher than the company's previous guidance range of 59%-61% but also exceeding the market's general expectation of 60.8%. The operating profit margin for the quarter reached 54%, also surpassing the market's expectation of 51%. The company further raised its gross margin guidance for the first quarter to 63%-65%, significantly higher than Bank of America Merrill Lynch's estimate of 60.9% and the market's general expectation of 60.0% JP Morgan's report points out that Taiwan Semiconductor has raised its long-term structural gross margin target from the original "53% and above" to "56% and above," mainly benefiting from improved pricing power and operational efficiency. The company has also raised its return on equity target from 25% to nearly 30%. Although the initial production of the N2 process in the second half of 2026 may lead to a temporary dilution of gross margins, the overall profitability for the year is still expected to remain at a high level.

Bank of America Merrill Lynch analyst Haas Liu believes that Taiwan Semiconductor's margin expansion mainly comes from two aspects: first, the continuous price increases of advanced process nodes and a compound annual growth rate of over 20% brought by the migration of process nodes; second, the increasing proportion of higher-priced advanced process products in the structure.

In addition, the company's dominant market share in advanced processes, as well as the optimization of capacity allocation from traditional mature processes to advanced packaging, are also driving it to maintain a more stable and sustainable capacity utilization level.

Semiconductor Equipment Stocks Benefit, AI Investment Cycle Continues

Taiwan Semiconductor's significant upward revision of capital expenditure outlook constitutes a direct benefit to the Asian semiconductor equipment sector. Goldman Sachs' report indicates that related companies such as Tokyo Electron and Advantest are expected to see strong increases. Meanwhile, SK Hynix is also accelerating the operation pace of new factories to meet the rapidly rising demand for DRAM storage chips.

According to media reports, OpenAI plans to launch its first AI chip, Titan, by the end of 2026, which will be developed in collaboration with Broadcom and will use Taiwan Semiconductor's 3-nanometer process. The subsequent model, Titan II, is expected to upgrade to Taiwan Semiconductor's A16 process. Additionally, OpenAI has also chosen Samsung's 2-nanometer Exynos chip for its artificial intelligence headset "Sweetpea."

In terms of institutional ratings, JP Morgan maintains an "Overweight" rating on Taiwan Semiconductor, with a target price set at 2,100 New Taiwan Dollars, based on a valuation of 20 times the expected price-to-earnings ratio for 2027. Bank of America Merrill Lynch also maintains a "Buy" rating, with a target price of 2,150 New Taiwan Dollars. Analysts believe that the company will continue to be in a virtuous cycle of high growth and margin expansion, mainly benefiting from ongoing AI investments and favorable pricing prospects.

Goldman Sachs analyst Johnstone summarizes that Taiwan Semiconductor has long been seen as a key capacity bottleneck in the AI industry chain due to the company's previously cautious attitude towards capital investment. Now, the management has not only raised the expenditure guidance to levels far exceeding optimistic expectations but has also clearly stated that the investment plan for the next three years will be "significantly higher." This is a clear positive signal for the entire semiconductor equipment and AI sector, indicating that the main capacity bottleneck has begun to accelerate the release of supply.