AI demand frames TSMC’s Q2 earnings as chip supply stays tight

Taiwan Semiconductor Manufacturing Company (TSMC), the contract producer of most advanced AI chips in the world, reports on its second quarter earnings today (July 16). The results could serve as one of the clearest indicators of how the AI boom is shifting the semiconductor industry since the production capabilities of TSMC still define the level of cutting-edge chips’ presence on the market.

The firm started its quiet period between July 6 and July 15 ahead of the earnings announcement, according to its investor relations website. The conference call will be held at 2:00 p.m. Taiwan time.

What the guidance points to

In the second quarter, TSMC anticipated revenues ranging from $34.6 billion to $35.8 billion, with a gross margin of 63% to 65% as well as an operating margin of 54% to 56%. This outlook indicates that the demand has continued to be almost at the peak level even in the period of uncertainty about world trade and tariffs.

The company has just had the best financial year in its history. Its 2025 annual report shows that TSMC had revenues of NT$3.49 trillion (roughly US$106.5 billion) and net income of NT$1.17 trillion (approximately US$35.8 billion), while its diluted earnings per share reached NT$66.26, a record for the company.

Wall Street anticipates another successful financial quarter. Analysts polled by LSEG, according to Reuters’ report, predict a net profit of about NT$632.6 billion for the second quarter, which would set up a fifth consecutive quarter of such profit as the interest in AI infrastructure leads to a growing demand for more advanced chips.

Besides the headline figures, investors would seek to gather information about any revisions of TSMC’s guidance for its revenue for the full year or capital expenditure program, both of which are typically regarded as precursors to investments in AI infrastructure.

AI is the engine, and packaging is the bottleneck

The demand for TSMC’s advanced manufacturing technologies also continues to increase due to the boom in AI. Chips manufactured in 7nm and better nodes comprised 74% of the wafer revenues in 2025, as compared to 69% a year before. The firm’s 2nm technology has started commercial production from the end of 2025, with the increase in production to happen this year. In its annual report, TSMC said its “conviction in the AI megatrend is strengthening.”

Nevertheless, the main hindrance affecting the sector is not wafer manufacture, but advanced packaging.

Chip-on-Wafer-on-Substrate (CoWoS) technology from TSMC, which connects AI processors with high-bandwidth memory, is still experiencing high demand from clients like Nvidia, AMD and hyper-scale cloud giants.

According to a report from Taiwan’s Economic Daily News, the gap between the demand for CoWoS and the actual capacity available in the market may decrease from current levels of around 20% to around 10% by the end of 2026, as new production lines become operational.

A report by TrendForce indicates that TSMC’s capacity for CoWoS is likely to reach between 120,000 and 140,000 wafers per month this year, while total industry-wide manufacturing capacity is expected to exceed 200,000 wafers per month when considering the services offered by outsourced packaging partners. In addition, it is projected that the demand for AI wafers will increase by nearly 11 times from 2022 to 2026.

If the expansion progresses as planned, hyperscale cloud providers will experience reduced packaging delays in the latter half of 2026, thus facilitating the arrival of more AI accelerators from Nvidia, AMD, and custom chip makers such as Google, Amazon, and Microsoft to data centers.

On the other hand, if the flow of capacity additions falls behind demand, packaging will probably continue to be the biggest bottleneck in the industry, rather than wafer production, which will make it difficult for new AI infrastructure to be deployed.

TSMC’s position in manufacturing also restricts its competitors’ chances of overtaking them. TrendForce states that in Q1 2026, TSMC has 72% of the global pure-play foundry market while Samsung Foundry has 6.5% and China’s SMIC has 5.1%. Based on that, there is evidence that TSMC can remain the cooperating partner for practically all renowned designers of AI chips.

An industry riding the same wave

TSMC does not have the monopoly on AI-driven demand in the chip manufacturing business.

A survey of 151 semiconductor executives conducted by KPMG and Global Semiconductor Alliance revealed 93 percent of the respondents expect the industry to post higher revenues in 2026, with confidence index increasing to 63 – a reading score which is the third-highest in two decades. Almost three-fourths of the industry executives consider Artificial Intelligence the most significant driver of growth in the industry, even higher than such spheres as cloud computing and data centers.

The results of the survey also showed that there is an increasing concern about the business conditions faced by the industry. In fact, for the first time since in its 21-years history, executives have rated tariffs and trade regulations as the biggest challenge, with other executives stating that reliable energy supplies are needed for advanced semiconductor manufacturing activities.

What to watch

The earnings call on Thursday is likely to give more than a glance at TSMC’s finances.

Investors would be keen to find out if there are any developments in regard to the progress in ramping up production on the 2-nanometer process, any advancement pertaining to the increase in CoWoS capability as well as whether or not the management thinks that the demand for AI is good enough to raise the forecast for the year.

Such updates may provide a significant indicator of whether the industry has started to move past its most challenging supply constraint. If packaging capabilities continue to grow according to plan, then more AI chips will be supplied to cloud computing companies during the latter half of 2026. Conversely, advanced packaging will still be the bottleneck in production despite increased wafer production.

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