The Motley Fool Has 3 Key Insights for Investors on TSMC's Revenue

Key Points

• North America makes up the vast majority of TSMC's revenue -- and that is growing.

• The company has made significant progress in advanced chips in recent years.

• High-performance computing is becoming a more important part of the business.

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Taiwan Semiconductor Manufacturing (NYSE: TSM) might not get as much attention as Nvidia or Palantir Technologies, but TSMC, as the chip-manufacturing giant is also known, continues to look like a big winner in the artificial intelligence (AI) boom.

Since the beginning of 2023, roughly when ChatGPT was launched, the stock is up 252%, and the business has delivered smashing results on both the top and bottom lines. Its revenue has grown rapidly. Its margins have expanded, and it has stretched its competitive advantage. As the world's largest semiconductor manufacturing company, it's become an even more valuable partner for chip designers like Nvidia that rely on it for manufacturing.

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TSMC's strong growth rate has continued through the year as its revenue jumped 34% in August, and the company is guiding for $31.8 billion to $33 billion in revenue for the third quarter with an operating margin of 45.5% to 47.5%.

Let's take a closer look at how TSMC makes its revenue and what it tells us about the future of the company, using this research from The Motley Fool.

Image source: Getty Images.

1. North America is playing a bigger role

North America has long been the company's biggest market, but it's become even more central to TSMC's business in recent years.

In the second quarter, sales to North America made up 75% of its revenue, up from 56% in the first quarter of 2020. That transition has taken place during a massive data center buildout in North America and because TSMC's biggest customers like Apple, Nvidia, and Advanced Micro Devices come from the U.S.

Additionally, TSMC has been courted by both the Biden and Trump administrations as a key manufacturing partner at a time when the U.S. is seeking to promote domestic semiconductor manufacturing to ensure it has an adequate supply of chips.

TSMC is currently building multiple plants in the U.S. and has received billions in grants from the CHIPS Act. Additionally, its share of business going to China has fallen from 22% to 9% during that time due in part to slowing economic growth in political pressure in the form of export controls from the U.S.

2. Its technology is advancing quickly

Another major transition that has taken place with TSMC's business in the last few years is that advanced chips for high-performance computing have commanded an increasing share of its business.

In the second quarter, advanced chips, which the company defines as 7 nanometers (nm) or less, made up 64% of its revenue, compared to just 35% in the beginning of 2020 when it didn't make 3nm or 5nm chips.

Sixty percent of TSMC's revenue now comes from those two nodes, a reflection of both the company's advancing technology and the demand for more powerful chips, both of which have helped widen the company's economic moat. TSMC will soon start manufacturing chips under a 2nm process.

3. High-performance computing is the future, and the present

At one point, smartphones were the biggest platform that TSMC served, but these days it's been replaced by high-performance computing, which includes chips like Nvidia's that are intended for data centers.

From the first quarter of 2020 to Q2 2025, the percentage of revenue coming from high-performance computing jumped from 30% to 60%. Meanwhile, the percentage of revenue coming from smartphones has fallen from 49% to 29%. Considering TSMC's strong growth, that's more a reflection of the maturing of the smartphone market rather than a decline in revenue.

However, the percentage of revenue share coming from high-performance computing only grow as hyperscalers and other companies are pouring hundreds of billions into AI and data centers.

What it means for TSMC

While competitors like Samsung and Intel have struggled in recent years, TSMC seems to have done everything right as it's on top of all the key trends in the semiconductor industry.

For investors, the stock also continues to look well-priced, trading at a price-to-earnings ratio of 28, which is cheaper than most of its AI stock peers. Given its dominance in chip manufacturing and strong competitive advantages, TSMC looks poised to outperform for years to come.

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Jeremy Bowman has positions in Advanced Micro Devices, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Intel, Nvidia, Palantir Technologies, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: short November 2025 $21 puts on Intel. The Motley Fool has a disclosure policy.