Advanced AI Chip Demand Likely to Aid Taiwan Semiconductor's Q2 Sales

Taiwan Semiconductor Manufacturing Company Ltd. TSM is scheduled to release its second-quarter 2025 earnings on July 17. The company’s sustained focus on advanced semiconductor technologies and the growing demand for artificial intelligence (AI) chips across multiple industries positions it for robust financial results.

Click here to know how TSM’s overall second-quarter results are likely to be.

Advanced Node Demand Powers TSM’s Revenue Growth

For the second quarter, Taiwan Semiconductor has projected revenues between $28.4 billion and $29.2 billion, implying a year-over-year increase of 38.3% at the midpoint. The Zacks Consensus Estimate for the top line is pegged at $30.04 billion, indicating year-over-year growth of 44.3%.

The increasing use of AI in cloud services, personal electronics and data centers has led to a sharp rise in demand for high-performance chips. Taiwan Semiconductor, the world’s largest contract chipmaker, is benefiting directly from this shift. Its lead in advanced chipmaking technologies, especially the 3-nanometer (nm) and 5-nm nodes, is likely to have played a big role in boosting revenues during the to-be-reported quarter.

Taiwan Semiconductor has been witnessing strong demand for its AI-focused products, including Chip-on-Wafer-on-Substrate advanced packaging solutions. This segment has seen consistent demand exceeding supply, reflecting the company’s critical role in powering AI and high-performance computing applications.

Global Expansion and Energy Costs to Pressure TSM’s Margins

Rising operational costs, especially from its overseas expansion into Arizona, Japan and Germany, are likely to have hurt Taiwan Semiconductor’s gross margin in the to-be-reported quarter. These new facilities, which are strategically important for diversification, are expected to reduce gross margins by 2-3% annually over the next three to five years due to higher labor and utility costs, coupled with lower initial utilization rates.

Higher energy prices in Taiwan, following a 25% electricity hike in 2024, pose additional challenges, especially as advanced nodes demand greater power.

Despite the prevailing challenges, analysts remain optimistic about TSM’s bottom-line growth in the to-be-reported quarter. The Zacks Consensus Estimate for Taiwan Semiconductor’s second-quarter earnings has been revised upward by 5 cents to $2.37 per share, indicating year-over-year growth of 60.1%. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)

TSM’s Zacks Rank & Other Stocks to Consider

Currently, Taiwan Semiconductor carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks worth considering in the broader Zacks Computer and Technology sector are Micron Technology MU, Intel INTC and STMicroelectronics STM, each carrying a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Micron Technology’s fiscal 2025 earnings has been revised upward by 12.1% to $7.77 per share in the past 30 days, suggesting an increase of 497.7% from fiscal 2024’s reported figure. Micron Technology shares have rallied 42.7% year to date (YTD).

The Zacks Consensus Estimate for Intel’s 2025 earnings has moved downward by a penny to 28 cents per share in the past 30 days, implying a robust improvement from 2024’s loss of 13 cents per share. Intel shares have risen 14.3% YTD.

The Zacks Consensus Estimate for STMicroelectronics’ full-year 2025 earnings has been revised upward by a penny to 81 cents per share over the past seven days and suggests a year-over-year decline of 51.2%. STMicroelectronics shares have soared 26.2% YTD.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research