We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
TSM's Gross Margin Hits 66% in Q1: Can Profit Growth Offset Fab Costs?
Read MoreHide Full Article
Key Takeaways
TSMC posted 66.2% gross margin in Q1 2026, up sharply YoY and sequentially.
TSM sees Q2 margin at 65.5%-67.5%, signaling continued expansion despite cost pressures.
TSMC expects 2nm ramps and global fabs to weigh on margins, offset by scale and demand.
Taiwan Semiconductor Manufacturing Company (TSM - Free Report) , also known as TSMC, continues to show strong profitability over the past few quarters despite rising cost pressures from ramping up its 2nm technology and expanding overseas fabs across multiple countries. TSMC expects these initiatives may dilute gross margin by 2%-3% in 2026, with further pressure in later years as global expansion continues. At the same time, higher input costs, including chemicals and energy, could further weigh on margins.
Despite these pressures, Taiwan Semiconductor’s gross margin expanded 740 basis points year over year and 390 basis points sequentially to 66.2% in the first quarter of 2026, showing its ability to absorb rising costs while sustaining profitability.
For the second quarter of 2026, TSMC expects gross margin between 65.5% and 67.5%. The midpoint of the guidance range depicts a year-over-year improvement of 790 basis points and a sequential expansion of 30 basis points.
Taiwan Semiconductor is betting that scale, automation and government incentives will eventually close the cost gap. We believe that the robust demand for advanced nodes and high factory utilization will help the company meet its second-quarter 2026 gross margin targets.
Taiwan Semiconductor’s revenues grew 40.6% year over year to $35.9 billion in the first quarter of 2026. Analysts believe the momentum will continue in the years ahead, considering the company’s global expansion strategy and the rising demand for AI and advanced computing chips. The Zacks Consensus Estimate for 2026 and 2027 revenues indicates year-over-year growth of 31.2% and 25.5%, respectively.
TSMC’s Rivals in Advanced Packaging
Intel Corporation (INTC - Free Report) and GlobalFoundries Inc. (GFS - Free Report) are also expanding their presence in advanced packaging technology.
Intel is making a strong push into advanced packaging through its IDM 2.0 strategy. Intel is investing in technologies like Foveros and EMIB to support chiplet architectures, similar to Taiwan Semiconductor’s approach. The company is also expanding its foundry services business, aiming to offer both manufacturing and packaging as a combined solution.
GlobalFoundries focuses more on mature nodes but is gradually enhancing its packaging offerings. While it does not compete directly in cutting-edge AI chips, GlobalFoundries is targeting specialized applications that require efficient integration.
While both companies are investing in packaging, TSMC maintains an edge due to its scale, customer base and tight integration with advanced node manufacturing.
TSM’s Share Price Performance, Valuation and Estimates
Shares of Taiwan Semiconductor have surged around 130.7% over the past year compared with the Zacks Computer and Technology sector’s appreciation of 52.6%.
From a valuation standpoint, TSMC trades at a forward price-to-earnings ratio of 24.27, slightly lower than the sector’s average of 25.32.
Taiwan Semiconductor Forward 12-Month P/E Ratio
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Taiwan Semiconductor’s 2026 and 2027 earnings implies a year-over-year increase of 41.1% and 24.2%, respectively. The consensus mark for 2026 and 2027 earnings has been revised upward over the past seven days.
View the Zacks #1 Rank List
Image: Bigstock
TSM's Gross Margin Hits 66% in Q1: Can Profit Growth Offset Fab Costs?
Key Takeaways
Taiwan Semiconductor Manufacturing Company (TSM - Free Report) , also known as TSMC, continues to show strong profitability over the past few quarters despite rising cost pressures from ramping up its 2nm technology and expanding overseas fabs across multiple countries. TSMC expects these initiatives may dilute gross margin by 2%-3% in 2026, with further pressure in later years as global expansion continues. At the same time, higher input costs, including chemicals and energy, could further weigh on margins.
Despite these pressures, Taiwan Semiconductor’s gross margin expanded 740 basis points year over year and 390 basis points sequentially to 66.2% in the first quarter of 2026, showing its ability to absorb rising costs while sustaining profitability.
For the second quarter of 2026, TSMC expects gross margin between 65.5% and 67.5%. The midpoint of the guidance range depicts a year-over-year improvement of 790 basis points and a sequential expansion of 30 basis points.
Taiwan Semiconductor is betting that scale, automation and government incentives will eventually close the cost gap. We believe that the robust demand for advanced nodes and high factory utilization will help the company meet its second-quarter 2026 gross margin targets.
Taiwan Semiconductor’s revenues grew 40.6% year over year to $35.9 billion in the first quarter of 2026. Analysts believe the momentum will continue in the years ahead, considering the company’s global expansion strategy and the rising demand for AI and advanced computing chips. The Zacks Consensus Estimate for 2026 and 2027 revenues indicates year-over-year growth of 31.2% and 25.5%, respectively.
TSMC’s Rivals in Advanced Packaging
Intel Corporation (INTC - Free Report) and GlobalFoundries Inc. (GFS - Free Report) are also expanding their presence in advanced packaging technology.
Intel is making a strong push into advanced packaging through its IDM 2.0 strategy. Intel is investing in technologies like Foveros and EMIB to support chiplet architectures, similar to Taiwan Semiconductor’s approach. The company is also expanding its foundry services business, aiming to offer both manufacturing and packaging as a combined solution.
GlobalFoundries focuses more on mature nodes but is gradually enhancing its packaging offerings. While it does not compete directly in cutting-edge AI chips, GlobalFoundries is targeting specialized applications that require efficient integration.
While both companies are investing in packaging, TSMC maintains an edge due to its scale, customer base and tight integration with advanced node manufacturing.
TSM’s Share Price Performance, Valuation and Estimates
Shares of Taiwan Semiconductor have surged around 130.7% over the past year compared with the Zacks Computer and Technology sector’s appreciation of 52.6%.
Taiwan Semiconductor One-Year Price Return Performance
Image Source: Zacks Investment Research
From a valuation standpoint, TSMC trades at a forward price-to-earnings ratio of 24.27, slightly lower than the sector’s average of 25.32.
Taiwan Semiconductor Forward 12-Month P/E Ratio
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Taiwan Semiconductor’s 2026 and 2027 earnings implies a year-over-year increase of 41.1% and 24.2%, respectively. The consensus mark for 2026 and 2027 earnings has been revised upward over the past seven days.
Image Source: Zacks Investment Research
Taiwan Semiconductor currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.