TSMC's Q1 net profit soared 60%, has the AI wave returned?
TSMC just released its Q1 2025 earnings report. Revenue reached approximately NT$839.25 billion (~$25.4 billion), up 41.6% YoY, slightly exceeding market expectations.
Growth was primarily driven by AI chip demand, with advanced 3nm (N3) and 5nm (N5) processes contributing 60% of wafer revenue, while gross margin remained high at 60%.
Additionally, TSMC announced that its 2nm process will enter mass production in H2, with plans to invest $38-42 billion in capacity expansion, focusing heavily on AI and high-performance computing (HPC).
Following the report, TSMC's after-hours shares surged 4%, and the Nasdaq rebounded 1.2%. Does TSMC's strong earnings signal the return of the AI wave, or is it just a "dead cat bounce"?
From a broader industry perspective, TSMC's performance indeed has a positive impact on the AI sector. As the key foundry for AI chip giants like NVIDIA and AMD, its advanced processes (e.g., 3nm/2nm) and CoWoS packaging technology are critical for AI compute upgrades.
Meanwhile, TSMC's expansion of CoWoS packaging capacity (for AI chip high-bandwidth memory) will ease current AI chip supply constraints,benefiting data center construction for cloud giants like Microsoft and Amazon.
From a company-specific angle, does this also confirm strong demand for NVIDIA?
Short-term outlook is solid, but long-term challenges remain.
In the near term, NVIDIA's H100 and B200 AI GPUs rely on TSMC's 4nm/5nm processes, with TSMC projecting AI chip sales to double in 2025. NVIDIA alone accounts for 70% of TSMC's capacity, directly supporting its chip shipments.
NVIDIA's latest Blackwell GPUs, also using TSMC's 4nm process, are set for mass production in Q2 with overwhelming demand—orders are already booked through 2026.
Long-term risks include AMD's technological catch-up, in-house chip development by other clients, and geopolitical impacts on supply chains and sales.
However, this afternoon, Jensen Huang visited China for the first time in three months, meeting with senior officials and emphasizing China as a critical market, expressing hopes for continued collaboration. During this sensitive period, this meeting may signal something noteworthy.
So, is the tech rally back?
It's too early to call a tech stock revival. The biggest uncertainty—Trump's tariff policies—remains unresolved, potentially weighing on H2 performance for semiconductors and consumer electronics.
From a bear market lens, the current volatility fits—"dead cat bounces" and wild swings are typical. Technically, SOXX remains in a downtrend.
AI is a 5-10 year megatrend. Avoid chasing rallies or panic-selling. Accumulate core holdings like NVIDIA and TSMC gradually on dips. For smaller stocks, scrutinize their tech execution and profitability—higher drawdowns in a "bear market" demand caution!
Bottom line: TSMC's Q1 earnings validate AI's "hard demand" with intact long-term growth logic. However, market conditions and policy uncertainties may drive short-term volatility. Scale in/out to manage risk and keep cash ready for black swans.
$Taiwan Semiconductor(TSM.US)
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