Strong AI Chip Demand to Boost Taiwan Semiconductor's Q1 Earnings

Taiwan Semiconductor Manufacturing Company Ltd. TSM is scheduled to release its first-quarter 2025 earnings on April 17. The company’s strategic focus on cutting-edge semiconductor technologies, combined with the surging global demand for artificial intelligence (AI) applications, positions it for robust financial results.

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

AI Chip Demand Fuels TSM’s Revenue Growth

The rapid adoption of AI across industries like cloud computing, consumer electronics and data centers has fueled demand for high-performance chips. As the world’s largest contract chipmaker, Taiwan Semiconductor has been at the forefront of this revolution. Its leadership in advanced process nodes like 3-nanometer (nm) and 5-nm technologies is expected to have driven significant revenue growth in the first 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.

For the first quarter, Taiwan Semiconductor has projected revenues between $25 billion and $25.8 billion, representing a year-over-year increase of 34.6% at the midpoint. This growth is attributed to its ramp-up of 3-nm production, positioning it to capitalize on AI-driven opportunities.

Rising Operational Costs Hurt TSM’s Earnings Growth

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 dilute 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.

The Zacks Consensus Estimate for Taiwan Semiconductor’s first-quarter earnings has been revised downward by a penny to $2.02 per share, indicating year-over-year growth of 46.4%. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)

TSM’s Zacks Rank & Stocks to Consider

Currently, Taiwan Semiconductor carries a Zacks Rank #3 (Hold).

Broadcom AVGO, NVIDIA NVDA and STMicroelectronics STM are some top-ranked stocks that investors can consider in the broader Zacks Computer and Technology sector. Broadcom sports a Zacks Rank #1 (Strong Buy), while NVIDIA and STMicroelectronics carry a Zacks Rank #2 (Buy) each at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Broadcom’s fiscal 2025 earnings has been revised upward by 4 cents to $6.60 per share in the past 30 days, suggesting an increase of 35.5% from fiscal 2024’s reported figure. Broadcom shares have rallied 39.2% over the past year.

The Zacks Consensus Estimate for NVIDIA’s fiscal 2026 earnings has moved upward by 2 cents to $4.41 per share in the past 30 days, reflecting robust 47.5% year-over-year growth. NVIDIA shares have risen 33.5% in the trailing 12 months.

The Zacks Consensus Estimate for STMicroelectronics’ full-year 2025 earnings has remained unchanged at 85 cents per share over the past 60 days, and suggests a year-over-year decline of 48.8%. STMicroelectronics shares have plunged 49.1% over the past year.

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