AI demand powers Taiwan’s TSMC to its highest-ever quarterly profit

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Booming AI demand helped Taiwan Semiconductor Manufacturing Company to its highest quarterly net profit, but the world’s largest chip manufacturer gave a more cautious outlook, citing risks from US tariffs and foreign exchange volatility.

TSMC reported NT$398.3bn (US$13.5bn) in net earnings on Thursday for the second quarter, a 60.7 per cent jump year-on-year, along with a 39 per cent jump in revenues to NT$933.8bn. Chief executive CC Wei attributed the record results to “continued robust demand” for AI and high-performance computing applications.

The company said it expected revenues to increase by another 38 per cent year-on-year in the current quarter and raised its growth forecast for the full year to 30 per cent. But that outlook implies a revenue contraction in the final quarter of 2025.

“We become more conservative,” Wei said. TSMC said it was not seeing any change in customer demand so far, but pointed to the risk that US tariff policies could affect consumers and that the weakening US dollar could undermine growth and profitability.

The cautious outlook comes after ASML, the world’s sole supplier of the lithography machines needed for making cutting-edge chips, said on Wednesday that the impact of US President Donald Trump’s tariff policies was less negative than expected. It also issued guidance more cautious than analysts had expected.

The rapid appreciation of the New Taiwan dollar, which has gained 12 per cent against the US dollar this year, is already eating into TSMC’s profitability. Nearly all of the company’s revenues are in US dollars, while 75 per cent of its cost of goods sold is incurred in its home country’s currency.

TSMC forecast its gross margin would decrease to a level between 55.5 and 57.5 per cent from 58.6 per cent in the second quarter, as costs from the expansion of new plants in the US and the less favourable exchange rate took their toll.

Earlier this year, TSMC raised its US investment plans from a previous commitment of $65bn to a total $165bn. TSMC expects the cost of successively bringing the new capacity online would dilute its gross margin by 2 to 4 percentage points annually for five years, beginning with this year’s profit margins.

But the near-term effect of currency fluctuations weighs at least as heavily. Compared with the exchange rate of NT$32.5 to the dollar expected by the company for the second quarter in April, the NT dollar had appreciated by another 4.4 percentage points, diluting the gross margin by 180 basis points. This was partially offset by higher utilisation of its fabrication plants, or fabs, TSMC said.

For the third quarter, Taiwan’s currency was expected to appreciate by another 6.6 percentage points sequentially, said chief financial officer Wendell Huang. This “will negatively impact our third-quarter revenue and reduce our gross margin by about 260 basis points”, he added.