TSMC's recently concluded Q1 2026 earnings call revealed that the global semiconductor foundry is entering a period of rapid expansion characterized by both challenges and rewards. As artificial intelligence accelerates its transition from generative AI to agentic AI, the massive demand for computing power is not only driving TSMC's full-year revenue growth forecast to over 30%, but also prompting it to significantly expand its 3nm process capacity globally.
Advanced process roadmap: N2 process steadily advancing, A14 unveiled ahead of schedule
TSMC continues to demonstrate exceptional control over the pace of its advanced process advancements, with its technology roadmap clearly outlined up to 2028:
• The N2 family's strategic extension with the A16:The N2 process entered mass production with excellent yield in the fourth quarter of 2025. To extend the lifecycle of the 2nm node and meet the diverse long-term needs of customers, TSMC will continue to launch improved versions of N2P and A16 technologies. Strategically, A16 will play the role of the ultimate enhanced version of the 2nm process family, responsible for a smooth transition to the next generation of major nodes.
• Next-generation major milestone A14 revealed:台積電首度詳細說明A14製程的優勢。作為採用第二代奈米片 (Nanosheet)電晶體結構的新世代，A14具備顯著的PPA (效能、功耗、面積)設計優勢。相較於N2製程，A14在同功耗下速度可提升10~15%，同速度下的功耗則大幅降低25~30%，而邏輯密度更增加近20%。
The A14 is expected to enter mass production in 2028 and has already attracted significant participation from major players in the fields of smartphones, HPC high-performance computing, and AI. This is expected to be a deep moat for TSMC to further widen the technological gap with its competitors (such as Intel and Samsung).
Breaking the convention of not easily expanding production: Heavy global deployment of 3nm technology
To meet the huge and urgent demand for AI and HPC, TSMC has launched an unprecedented global simultaneous capacity expansion plan, with a particular focus on deploying significant resources for its 3nm (N3) process:
• Taiwan serves as the core for R&D and initial mass production:In addition to the N2 process already in mass production at its Hsinchu and Kaohsiung plants, TSMC is also converting its existing 5nm equipment to support 3nm for its N3 capacity. Furthermore, it has announced the construction of a new 3nm ultra-large wafer fab (GIGAFAB) in the Tainan Science Park, which is expected to begin mass production in the first half of 2027.
• US and Japanese overseas factories directly adopt 3nm process:The second wafer fab in Arizona, USA, has confirmed that it has adopted the 3nm process (mass production is expected in the second half of 2027); while the second wafer fab in Kumamoto, Japan, is also planned to be upgraded to adopt the 3nm process and is expected to start mass production in 2028.
• Mature processes and transformation of old plants:Regarding mature processes, TSMC adheres to a strategy of "focusing on specialized processes and avoiding price wars over capacity." For example, JASM's first Fab in Japan specializes in CMOS image sensors, while ESMC in Germany focuses on automotive and industrial applications. At the same time, TSMC has also confirmed that it will gradually scale back its earlier Fab 2 (6-inch) and Fab 5 (8-inch GaN) to free up space to support more value-added advanced process applications.
Geopolitical Supply Chain Resilience: Raw Material and Energy Control
In response to the potential macroeconomic and supply chain uncertainties brought about by the turmoil in the Middle East, TSMC also provided a clear risk management explanation during its earnings call:
• Raw materials and special gases:The situation in the Middle East could indeed lead to price increases for some chemical raw materials and gases, compressing future profits. However, regarding the "supply chain disruption risk," TSMC stated that it has implemented global multi-source supply and localized procurement for key materials (such as helium and hydrogen) and has prepared safety stockpiles, and does not expect operations to be disrupted in the short term.
• Hydropower energy supply:Regarding Taiwan's infrastructure, TSMC, through close cooperation with the government and Taipower, has confirmed that the supply of liquefied natural gas can be maintained stably until at least May. In addition, the government has an active diversified procurement backup plan, and it is expected that its operations will not be affected by the short-term impact of power or gas shortages.
The tug-of-war over profit structure: Proxy-based AI drives explosive growth
From the perspective of financial forecasts and market momentum, TSMC's revenue and profit structure is undergoing a significant change driven by AI.
The fundamental reason for the strong market demand lies in the fact that AI development is evolving from the past "query mode" to a proxy-based AI model of "command and action". This shift at the application layer has led to an exponential increase in the number of tokens consumed by large language models (LLMs) to process text, thereby maximizing the rigid demand on underlying computing power (including HPC and HBM logic chips).
Based on this, TSMC stated in its outlook that it expects its full-year US dollar revenue to grow by more than 30% in 2026, and to increase capital expenditure to the upper end of the range of US$520 billion to US$560 billion.
However, behind the strong revenue, gross margin is also facing a fierce battle between "positive and negative" factors. The good news is that the gross margin performance in the first two quarters was excellent (approximately 66.2%~66.5%), and the gross margin of the N3 process is expected to surpass the company's average in the second half of this year, becoming the main source of profit. However, the concerns are that the mass production of the N2 process in the second half of this year is expected to dilute the gross margin by 2~3%; at the same time, the higher cost structure in the initial stage of overseas plant construction will also bring about a dilution of about 2~3% (which may even expand to 3~4% later), which will severely test TSMC's cross-plant capacity scheduling and cost control capabilities.
Analysis of viewpoints
The Q1 2026 earnings call reveals that TSMC has transformed from a "wafer foundry that grows with market demand" into an "infrastructure provider supporting the next generation of global industrial revolution (i.e., AI)".
Driven by the massive computing power demands of proxy AI, TSMC's revenue growth is undeniable. However, the real challenge lies in balancing cost and expansion. To maintain its absolute leadership in process technologies such as N2 and A14, while meeting global demand for 3nm processes, TSMC must shoulder record-breaking capital expenditures and overseas operational integration costs. Therefore, in the next two to three years, TSMC's gross margin will inevitably face some dilution pressure. However, from a long-term strategic perspective, its "irreplaceable and fundamental position" in the global semiconductor supply chain is even more difficult to shake in the foreseeable future.
