TSMC's Paradox: Record Revenue and Margins Can't Ease the Capacity Squeeze on Its Biggest Clients

TSMC's advanced packaging and wafer capacity strained by AI demand, prompting Apple, AMD to explore alternatives. Revenue surges 40% with 50.5% net margin. Stock up 27% YTD.

The world’s most advanced chipmaker has become a victim of its own success. Taiwan Semiconductor Manufacturing Co. (TSMC) is so dominant that its cutting-edge production lines are chronically overbooked, forcing even its most loyal customers to explore backup plans. Apple has reportedly reached a preliminary agreement with Intel Foundry for certain chips, a move that does not break the iPhone maker’s long-standing dependence on TSMC but signals a clear unease. Meanwhile, AMD is in parallel talks with Samsung Foundry about potential 2-nanometer production. The message is unmistakable: no single supplier can be fully trusted to meet every surge in demand.

The shortage is especially acute in advanced packaging, where TSMC’s InFO and CoWoS technologies have become mission-critical for AI accelerators and high-performance processors. Nvidia’s insatiable appetite for AI chips continues to soak up wafer capacity and packaging resources, leaving less room for the high-volume chips Apple needs for iPhones and Macs. TSMC is responding aggressively: CoWoS capacity is slated to rise by more than 60% by 2027. But the AI hardware market is growing so fast that near-term bottlenecks remain almost certain.

That capacity race is expensive. TSMC’s management guided for capital expenditures to hit the upper end of its $56 billion target range, with the bulk flowing into the most advanced nodes. The payoff is already visible in the financials. April revenue came in at roughly $13 billion, a 17.5% year-over-year jump, and cumulative revenue for the first four months of 2026 reached nearly NT$1.5 trillion, up almost 30% from the same period last year.

The first quarter painted an even starker picture of profitability. Net revenue hit $35.9 billion, a 40.6% increase, while the net margin soared to 50.5%. Earnings per share grew even faster, and the company is guiding for second-quarter revenue of $39 billion to $40.2 billion — an annual growth rate of around 32%. For the full year, TSMC expects revenue to climb roughly 30%.

High-performance computing (HPC), the segment encompassing AI accelerators and server processors, accounted for 61% of first-quarter revenue. Advanced chips — those made on the smallest process geometries — now represent nearly three-quarters of total wafer revenue, underpinning a gross margin above 66%. That pricing power flows from a market share of roughly 72% in pure-play foundry, a dominance that analysts at the Taiwan Institute of Economic Research say will keep Intel and Samsung in the role of strategic reserves rather than genuine alternatives for leading-edge mobile and desktop chips.

The stock market has taken note. TSMC shares closed Friday at €348.50, up 27.66% since the start of 2026 and more than double their level 12 months ago. The price sits just below its 52-week high of €357, with a relative strength index of 64 — strong momentum without overheating. The medium-term uptrend remains intact, supported by moving averages that the stock comfortably holds above.

Still, the central challenge is the speed of capacity expansion. TSMC must ramp up CoWoS and its newest nodes faster than rivals can narrow the technology gap. For now, Apple, AMD, and Nvidia are all placing their biggest bets on TSMC, even as they quietly hedge. The next inflection point will not be whether TSMC loses a marquee customer, but whether it can build enough factories to keep the one it already has.