TSMC reports record Q2 revenue despite margin pressure from currency shift

Taiwan Semiconductor Manufacturing Co (TSMC) reported a record Q2 revenue of $30.5 billion and a 40% year-on-year surge in H1 2025 revenue, largely fueled by strong AI-related demand. However, the company faces significant margin pressure as a stronger Taiwanese dollar (NT$31/USD vs. forecast NT$32.5/USD) is expected to cause gross and operating margins to miss guidance. Investor concerns also center on the implied sharp slowdown in H2 growth, with the full-year target suggesting only 1% sequential growth compared to 27% in H2 2024, alongside potential drag from overseas expansion and smartphone demand softness, leading to a 0.8% dip in shares.

Analysis

Taiwan Semiconductor Manufacturing Co. (TSMC) reported a contradictory second quarter, characterized by record top-line revenue offset by significant profitability and growth concerns. The company achieved an all-time high revenue of $30.5 billion for Q2 and a 40% year-on-year revenue surge for the first half of 2025, driven by persistent, strong demand for its cutting-edge chips from key AI players. However, these positive results are overshadowed by material headwinds. A stronger New Taiwan dollar, averaging 31 per USD versus a forecast of 32.5, is expected to cause both gross and operating margins to fall short of guidance. Furthermore, growth momentum is decelerating, evidenced by the weakest month-on-month June growth in four years and a second consecutive month of slowing year-on-year gains. The most significant concern is the forward-looking outlook; the company's full-year 25% growth target implies a dramatic slowdown to just 1% sequential growth in the second half of the year, a stark contrast to the 27% half-over-half growth seen in 2024. The 0.8% share price decline reflects investor apprehension, which is compounded by risks associated with high capital expenditures, margin drag from overseas expansion, and potential softness in the smartphone market.

Key Decisions for Investors

• Investors should scrutinize upcoming company guidance for revised margin targets, as the adverse currency impact represents a direct and quantifiable threat to near-term profitability.
• The implied sharp deceleration in second-half growth, from a 40% surge in H1 to just 1% sequential growth, warrants a cautious stance and a re-evaluation of positions sensitive to growth momentum.
• Consider the near-term headwinds from high capital expenditure, overseas expansion costs, and potential smartphone softness as significant risks that currently counterbalance the long-term secular tailwind from AI demand.
• Given the negative market reaction to what was a record revenue quarter, it may be prudent to await further clarity on the H2 outlook and margin trajectory before initiating or adding to long positions.