TSMC Q225. Surfing The AI Tidal Wave With Style

2025 YoY revenue growth now pegged to 30%

TSMC reported Q225 revenues of $30.1 billion, up 44% YoY, up 17.8% QoQ and handily beating the high end of the $29.2 billion guidance. It also marked the company’s highest ever quarterly revenue. As we noted in this recent post, the significant movement in the US$ to NT$ exchange rate during the quarter was sure to be a talking point on the earnings call.

As it happened, this exchange rate fluctuation was of such significance during the last quarter, and will continue to be during the current quarter, it merited a deep dive by CFO Wendell Huang at the end of his prepared remarks, which you can find in the official TSMC transcript here. It’s worth going through it in full:

Now, let me make some comments on the impact of foreign exchange rate on TSMC's revenue and profitability. NT dollar is the reporting currency of our financial statements. Nearly all of our revenue is in US dollars, while about 75% of cost of goods sold is in NT. Therefore, fluctuations in the exchange rate between US dollar and NT will have a sizable impact to our reported revenue and gross profit margin.

Note that this setup with most revenue in US$ and most expenses in NT$ is the worst possible combination to have when the NT$ strengthens versus the US$

The sensitivity of the revenue to dollar NT exchange rate is nearly 100%. That is, every 1% appreciation of NT against US dollars will reduce our reported NT revenue by 1%. The sensitivity of our gross margin to the same 1% exchange rate change is about 40 basis points. That is, if NT appreciates 1 % against the dollar, our gross margin will come down by about 40 basis points.

Given the size of the appreciation of the NT$ in recent months, those are some pretty stark data points. Next, he translates this into what actually happened in Q2, and what is on the cards for Q3:

Compared with our second-quarter exchange rate guidance of $1 to TWD32.5 provided on April 17, the NT dollar has appreciated by an average of about 4.4% sequentially, which negatively impacted our second-quarter revenue by about 4.4% in NT and our gross margin by about 180 basis points. For third quarter of '25, based on the current exchange rate of $1 to TWD 29, the average NT dollar will appreciate by another 6.6% sequentially, which will negatively impact our third-quarter revenue by 6.6% in NT and reduce our gross margin by about 260 basis points.

So, 180 bips impact to GM in Q2 to be followed by a further 260 bips in the current quarter. That’s quite a hit. In TSMC’s case, they appear to be well able to weather this headwind. It makes me wonder how many other companies out there are similarly impacted by what are essentially unintended/unforeseen consequences of the US Tariff “situation”. Quite a few I should think, perhaps not for exchange rate issues, but, as was the case with ASML earlier this week, just the general uncertainty as far as future investment plans are concerned.

Despite the exchange rate headwind and its negative consequences, the earnings call was extremely upbeat with the exception of a slight concern about the fourth quarter implied guidance which I think we can take with a grain of salt. Of particular interest to us was the current quarter guide, a raise to the full year guide, multiple comments about the company still trying to “close the gap” between demand and supply as well as some recent, new tailwinds that would appear to be either not yet baked into the numbers or likely to be of significant benefit otherwise. Let’s dig in…