How TSMC makes its money
TSMC stands for Taiwan Semiconductor Manufacturing Company. The company manufactures chips on behalf of other firms. This business model is called a foundry. Nvidia, Apple or AMD design their processors themselves. They are then built in TSMC’s plants. TSMC does not sell chips of its own. That is why the company never competes with its own customers.
In 1987, TSMC was the first company to build this model consistently. Today, sheer size is the decisive advantage. According to TSMC’s company profile, the group manufactured a total of 12,682 different products for 534 customers in 2025. Annual capacity was above 17 million wafers in the 12-inch format. Most plants are in Taiwan. There are also sites in the US, Japan, China and Germany.
Its market position is exceptional. According to TrendForce data, TSMC held a 69.9% share of the global foundry market in 2025. In the first quarter of 2026, the share rose to 72.3%, according to industry figures. Samsung followed far behind with 6.5%.
Why I took a closer look at the company
When I analyze AI stocks, I keep ending up at the same point. Nvidia designs the accelerators for data centers. Apple designs the processors for the iPhone. Both are manufactured at TSMC. If you want to assess these stocks, you also have to understand the manufacturer behind them.
The second reason is the particular situation in summer 2026. In July, TSMC reported a record quarter with sharply rising profit. At almost the same time, the company announced huge additional investments in the US. I look closely at moments like these. Record figures describe the present. The investments decide the profits of the future. Both belong in an honest analysis.
AI accounts for two thirds of revenue
The announcement on the second quarter of 2026 shows how strong demand is right now. TSMC generated revenue of 1,270.38 billion Taiwan dollars. That is around $40.2 billion and an increase of 36.0% on the prior-year quarter. Net profit rose by 77.4% to 706.56 billion Taiwan dollars. The gross margin reached 67.7%. For a contract manufacturer, these are unusually high figures.
The driver is high-performance computing, HPC for short. Behind it are mainly chips for AI data centers. According to an analysis of the quarterly presentation, the HPC platform accounted for 66% of revenue in the second quarter. Smartphones contributed 22%. TSMC now earns two thirds of its money from the build-out of data centers.
The full year 2025 was also a record year. According to the announcement on the fourth quarter of 2025, annual revenue reached 3,809.05 billion Taiwan dollars. That was an increase of 31.6% over 2024. For 2026, management raised its expectation to revenue growth of slightly more than 40%, according to media reports. A forecast remains an assumption. But it shows how management assesses its order situation.
Technology leadership at 2 nanometers
TSMC’s lead rests on its manufacturing technology. The smaller the structures, the more computing power per watt. At the end of 2025, TSMC started volume production on the 2-nanometer process. It is the first TSMC generation with so-called GAA transistors. In the second quarter of 2026, this process already delivered 3% of wafer revenue. The 3-nanometer process accounted for 30%, the 5-nanometer process for 33%. Advanced processes of 7 nanometers and below together made up 77%.
Development continues. According to TrendForce, TSMC plans the improved N2P variant for the second half of 2026. In the same period, the A16 process with backside power delivery is due to be ready for production. The market shares show that customers reward this lead with orders.
Nvidia and Apple are the largest customers
In 2025, there was a change at the top. According to an analysis of the 2025 annual report, Nvidia became TSMC’s largest customer for the first time. Nvidia accounted for around 727 billion Taiwan dollars of revenue, a share of 19% after growth of 106%. Apple followed with 17%, down from 22% before. TSMC itself does not name any customers. The attribution comes from industry analyses of the anonymized reporting data.
This concentration has two sides. Large customers secure the utilization of the expensive plants for years. At the same time, around a third of revenue depends on just two companies. If a major customer postpones a chip generation, TSMC feels it directly in its results.
Three questions before a possible purchase
First I check the business. Is revenue growing because TSMC sells more wafers at better prices? Do the margins hold while the new plants ramp up? For this I read several quarters side by side, not just the latest record announcement.
Then I check the trend. Even a strong company can be a weak stock for months if expectations have run away. That is why I look at whether the price trades above its long-term average lines and whether these lines are rising. This does not replace a valuation. It only shows whether I would be acting against the prevailing direction.
Finally I check momentum. After strong moves, the Relative Strength Index helps to put things into context. An extreme value calls for patience. Only the interplay of business, trend and momentum gives me a complete picture.
The key risks
Taiwan remains the central risk. Most of the manufacturing is in Taiwan. A military conflict with China would hit the global chip supply, and the stock first of all. The new plants abroad reduce this dependence only slowly. This risk cannot be calculated. You can only consciously carry it or avoid it.
The business devours huge sums. For 2026, TSMC plans capital spending of $60 to $64 billion, according to media reports. In July 2026, the company also announced an additional $100 billion for Arizona. Its planned US investments thus rise to $265 billion. Manufacturing outside Taiwan is more expensive. For the third quarter of 2026, TSMC expects a gross margin of 65% to 67%, after 67.7% in the second quarter.
Semiconductors remain cyclical. Right now, capacity is barely sufficient. If many suppliers expand at the same time, scarcity can turn into oversupply. Earlier cycles have shown how quickly prices and utilization then give way. A pause in the AI build-out would hit TSMC hard.
Customers and suppliers are concentrated. Around a third of revenue comes from Nvidia and Apple. On the supply side, the most important lithography machines come from ASML alone. A disruption at one point in this chain quickly affects the overall result.
Currencies and the ADR structure are part of the calculation. The ordinary share is quoted in Taiwan dollars. In Germany, you usually trade the ADR with the ticker TSM or a secondary listing in euros. Taiwan dollar, US dollar and euro thus all feed into your return. Exchange rates can amplify gains or eat them up.
My conclusion on TSMC stock
TSMC is the bottleneck of the digital world. Without its plants in Taiwan, there would be neither current iPhones nor the accelerators for AI data centers. The figures from summer 2026 show a company in record form. Market share, margin and technology speak a clear language.
Even so, my assessment remains split in two. On one side is a rare quality case with structural demand. On the other side are geopolitics, enormous investments and a cycle that can turn at some point. How much of this the price already anticipates is something you have to check yourself at the time of your decision.
For my own structure, I separate three levels: business development, long-term trend, short-term momentum. This order forces me to look at the company first and the chart second. That is not a recommendation. It is a framework that asks the same questions of every stock.