Taiwan Semiconductor Manufacturing (NYSE: TSM) shares rose sharply following the release of its quarterly financial results. The company reported significant growth in both revenue and earnings.
In the fourth quarter, TSMC's revenue increased nearly 26% to $33.7 billion. Earnings per American depositary receipt surged 40% to $3.14 from $2.24 a year earlier. Gross margin expanded to 62.3%, up 330 basis points, while operating margin rose to 54%, up 500 basis points.
The company projected first-quarter revenue between $34.6 billion and $35.8 billion, representing approximately 38% year-over-year growth at the midpoint. For the full year, TSMC expects revenue growth of about 30%.
TSMC announced it has increased its capital expenditure budget for 2026 to between $52 billion and $56 billion. This figure exceeds analyst expectations of just under $41 billion. Management stated that leading cloud computing companies have indicated their strong spending will continue.
High-performance computing accounted for 55% of quarterly revenue and 58% for the full year, with 2025 HPC revenue climbing 48%. Smartphone revenue made up 32% of quarterly revenue and 29% for the year, increasing 11% in 2025.
Advanced process nodes continued to drive performance. Nodes 7 nanometers and under accounted for 77% of revenue, up from 74% a year ago. The newest 3-nm technology comprised 28% of total wafer revenue, increasing from 26% a year earlier.
The stock has gained around 70% over the past year. TSMC trades at a forward price-to-earnings ratio below 21 times based on analysts' 2026 estimates, with a forward price/earnings-to-growth ratio of 0.7.