Taiwan Semiconductor Manufacturing Company (NYSE:TSM), the world’s largest contract chipmaker, has beaten Wall Street expectations for the first quarter of 2025, driven by surging demand for AI-related chips and continued strength in its 3nm and 5nm process technologies. However, the company warned of potential headwinds from global trade tensions and tariffs.
Q1 earnings and margins exceed expectations
TSMC reported first-quarter revenue of NT$839.25 billion (US$25.53 billion), a 41.6% year-on-year increase. Net income surged 60.3% to NT$361.56 billion, with earnings per share at NT$13.94, or US$2.12 per ADR unit, beating analyst consensus of US$2.07. Gross margin came in at 58.8%, with an operating margin of 48.5% and net profit margin of 43.1%.
Compared to the December quarter, revenue fell 3.4% and net income slipped 3.5%, reflecting seasonal softness in smartphones. Nonetheless, CFO Wendell Huang said demand for AI chips continued to grow, offsetting some of the seasonal drag.
“Our business in the first quarter was impacted by smartphone seasonality, partially offset by continued growth in AI-related demand,” Huang said. “Moving into second quarter 2025, we expect our business to be supported by strong demand for our industry-leading 3nm and 5nm technologies.”
Advanced technologies dominate wafer revenue
TSMC’s advanced process nodes—defined as 7nm and below—contributed 73% of total wafer revenue. The 3nm segment accounted for 22%, while 5nm made up 36%. These technologies are widely used in chips powering artificial intelligence, high-performance computing, and next-generation smartphones.
TSMC manufactures chips for tech giants including Apple, Nvidia, AMD, Broadcom, and Qualcomm.
Strong Q2 guidance lifts stock despite macro concerns
Looking ahead, TSMC guided second-quarter revenue between US$28.4 billion and US$29.2 billion, significantly ahead of Wall Street’s consensus estimate of US$26.92 billion. The midpoint of the guidance implies 13% quarter-over-quarter growth.
Gross margins for the quarter are expected to range from 57% to 59%, with operating margins between 47% and 49%.
Despite this strong short-term guidance, analysts remain cautious about the rest of the year due to ongoing uncertainty over tariffs and macroeconomic conditions.
“While we have not seen any changes in our customers’ behavior so far, uncertainties and risks from the potential impact from tariff policies exist,” Huang said. “We will continue to closely monitor the potential impact on the end market demand, and manage our business prudently.”
Stock reaction and analyst views
TSMC shares rose modestly on the news, trading around US$151.96 on Thursday afternoon. Barclays analysts said the company’s Q2 forecast “implied a conservative stance for the rest of the year,” while Needham’s Charles Shi noted the outlook “appears somewhat foggy beyond the next 90 days.”
Barclays rates TSM stock overweight with a price target of US$255, while Needham has a buy rating and a US$225 price target.
TSMC maintains a dominant position in advanced chip manufacturing, but its exposure to geopolitical and macroeconomic risks—especially in the context of escalating U.S.-China and U.S.-EU trade frictions—will remain a key variable for investors in 2025.