TSMC (TSM) Q4 2025: AI Revenue Nears 10% as U.S. Expansion Accelerates
AI-driven demand is reshaping TSMC’s revenue mix, with U.S. capacity buildout accelerating to meet customer urgency. Management’s commentary signals a strategic pivot toward advanced nodes and geographic diversification, while analysts pressed on Arizona execution and mature node transitions. The next phase for TSMC will be defined by its ability to balance leading-edge growth with cost and supply chain complexity.
Summary
- AI Revenue Share Rising: AI-related business now approaches 10% of revenue, with management expecting further expansion.
- Arizona Fab Acceleration: U.S. capacity buildout is being sped up in response to customer needs and strategic priorities.
- Customer Mix and Node Transition: Shifts in high-end smartphone and mature node demand are prompting operational adjustments.
Performance Analysis
TSMC’s Q4 2025 results highlight a business model, foundry manufacturing for global semiconductor companies, that is increasingly driven by AI and advanced process nodes. Management noted that AI revenue contribution is now close to 10%, a material jump that reflects both surging customer demand and TSMC’s technological leadership in three nanometer (N3) and upcoming two nanometer (N2) nodes. This shift is especially important as the foundry navigates a period of uneven demand in legacy segments like high-end smartphones and mature nodes.
Operationally, TSMC is responding to customer urgency by accelerating its Arizona fab expansion, a move that reflects both customer pressure and the company’s intent to diversify its manufacturing footprint beyond Taiwan. This geographic diversification is seen as critical for risk management and for capturing new U.S.-based business. Meanwhile, management acknowledged ongoing challenges in mature node utilization, requiring close coordination with customers to optimize capacity and product mix.
- AI Revenue Inflection: The AI segment now represents a significant and growing portion of overall business, changing TSMC’s revenue composition.
- U.S. Capacity Buildout: Arizona fab timelines are being accelerated, underscoring both strategic intent and customer-driven urgency.
- Mature Node Headwinds: Management flagged the need to manage mature node capacity, as demand shifts toward advanced nodes.
TSMC’s performance this quarter reflects a company at the intersection of technological leadership and global supply chain complexity, with the next chapters hinging on execution in both advanced and mature segments.
Executive Commentary
"I want to make sure my customers are real. I want to make sure my customers are real. So no doubt."
C. C. Wei, Chairman and Chief Executive Officer
"The revenue contribution last year is close to 10%. We expect it to grow in the next five years."
Wendell Wong, Senior Vice President and Chief Financial Officer
Strategic Positioning
1. Advanced Node Leadership
TSMC’s continued investment in three nanometer and two nanometer process technologies positions it as the partner of choice for AI and high-performance computing customers. Management’s repeated references to N3 and N2 readiness underscore the importance of staying ahead in process technology to defend and expand share against both incumbent and emerging foundry competitors.
2. U.S. Manufacturing Expansion
The Arizona fab acceleration signals a strategic response to geopolitical risk and customer localization demands. By speeding up the U.S. buildout, TSMC is both hedging against regional concentration risk and positioning itself for long-term engagement with North American customers, especially as supply chain security becomes a boardroom priority across the tech sector.
3. Customer and Product Mix Shifts
Demand is shifting away from legacy high-end smartphones toward AI and advanced compute applications, requiring TSMC to adjust both its production planning and customer engagement strategies. The company is proactively working with customers to manage mature node capacity and ensure optimal allocation of resources.
Key Considerations
This quarter marks a transition point for TSMC, with AI and geographic diversification reshaping the company’s risk and opportunity profile. The following considerations are critical for investors tracking the next phase of TSMC’s growth:
Key Considerations:
- AI Revenue Expansion: With AI-related business approaching 10% of revenue, TSMC’s exposure to secular growth drivers is increasing.
- Geopolitical Risk Mitigation: Arizona fab acceleration is a direct response to both customer and political pressure to diversify manufacturing.
- Mature Node Optimization: The need to manage mature node utilization remains a margin and capital allocation challenge.
- Customer Collaboration: Close coordination with customers is required to balance capacity and ensure long-term partnership stability.
Risks
Key risks for TSMC include execution risk in U.S. fab buildout, potential cost overruns, and the challenge of balancing advanced node investment with mature node profitability. Geopolitical volatility and customer concentration, especially in AI and high-end compute, could introduce further unpredictability. Management’s transparency on capacity and customer engagement is critical, but investors should watch for unforeseen supply chain or regulatory disruptions.
Forward Outlook
For Q1 2026, TSMC guided to:
- Continued growth in AI-related revenue contribution
- Acceleration of Arizona fab construction and production ramp
For full-year 2026, management indicated:
- Expectation of ongoing AI-driven growth and increased U.S. capacity utilization
Management highlighted several factors that could shape results:
- Customer urgency for advanced node capacity
- Ongoing optimization of mature node production
Takeaways
TSMC’s Q4 2025 results reflect a business model in transition, with AI and geographic diversification driving the next wave of growth and risk.
- AI as a Growth Engine: AI demand is materially reshaping TSMC’s revenue mix, with management signaling further expansion ahead.
- U.S. Expansion as Strategic Hedge: Arizona fab acceleration is both a customer-driven and risk management move, but execution will be under scrutiny.
- Advanced Node Execution: Investors should watch for TSMC’s ability to deliver on advanced node ramp and maintain profitability as customer and product mix evolves.
Conclusion
TSMC enters 2026 with strong AI tailwinds and a sharpened focus on U.S. capacity buildout, but must navigate execution risk and evolving customer dynamics. The company’s ability to balance advanced node leadership with cost discipline and supply chain resilience will define its long-term trajectory.
Industry Read-Through
TSMC’s results reinforce the centrality of AI and advanced node technologies for the global semiconductor industry. The acceleration of U.S. manufacturing signals a broader industry pivot toward geographic diversification and supply chain resilience, with implications for equipment suppliers, EDA software vendors, and downstream chip designers. Legacy node utilization challenges highlight the risk of stranded assets for less agile foundries, while the customer urgency for advanced capacity underscores the premium on technological leadership in the foundry sector.