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TSMC At 40% Growth: Can Its 2-Nanometer Ramp Protect Margins?

Taiwan Semiconductor Manufacturing Company Limited reported second quarter 2026 results highlighted by revenue growth driven primarily by strong demand for advanced process technologies, notably the 2-nanometer ramp, with these technologies (7-nanometer and below) accounting for 77% of wafer revenue. High-performance computing (HPC) contributed 66% of revenue, showing a 20% sequential increase, while smartphone revenue declined 4%. Other platforms, including Internet of Things (IoT) and automotive, increased modestly. The company ended the quarter with approximately TWD 3.5 trillion (USD 110 billion) in cash and marketable securities, supported by robust cash flow generation despite elevated capital expenditures. Financially, gross margin improved sequentially by 150 basis points to 67.7%, surpassing guidance, mainly due to cost improvements and higher capacity utilization, partly offset by margin dilution from overseas fabs. However, third quarter 2026 gross margin is expected to decline by around 1.