AI Chips Drive Around A Third Of TSMC Revenues
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CAPTION: A TSMC chip is displayed as the foundry reports soaring AI-driven sales and record quarterly results.<br>Ascannio/ shutterstock
AI Chips Drive Around A Third Of TSMC Revenues
Timothy Prickett Morgan
Timothy Prickett<br>Morgan
Co-Editor, Co-Founder, The Next Platform
Published<br>thu 16 Jul 2026 // 22:13 UTC
There is an old saying in the IT sector that probably dates back to the mainframe era that when it comes to electronic component and overall system prices, when demand exceeds supply you can milk the cash cow but you can’t rip the udders off.<br>Anyone peddling corporate computing products, be it for traditional systems or for AI clusters, are trying not to chap the tender bits of those Bessies but are milking as fast as they can as the supply of investment for AI systems is proving to be insatiable because everyone is counting on getting richer from this AI megatrend. It remains to be seen if these trillions of dollars of incremental investment in the IT sector will pan out, but if the budgetary actions by hyperscalers, cloud builders, model builders, neoclouds, and sovereigns are an indication, then AI will be responsible for doing as much work as people before the end of the decade. No one really knows what that means for the global economies and their cultures, at least not to my satisfaction and probably not yours.
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It is in this whirlwind of incremental spending driven by GenAI enthusiasm that Taiwan Semiconductor Manufacturing Corp has to do its capacity planning. The world’s largest foundry talks not only to its biggest customers to get capacity planning data, but goes one level deeper and talks to their biggest customers to get a read on what is happening. And then the top brass at TSMC make their best estimate of what the truth is. And as such, TSMC’s revenue and capital expense projections are probably the best gauge of what will happen.<br>At the moment, CC Wei, the foundry’s chief executive officer and chairman, is not ready to update its forecast for its AI-related businesses. Back in January, TSMC said that it expected for its AI business would grow in the mid-to-high 50 percents at a compound annual growth rate between 2026 and 2030, inclusive, which is pretty impressive. Wei would not give an updated number during his call with Wall Street today, but he did say the number was increasing and the CAGR is getting “stronger and stronger and stronger.”<br>Wei joked a bit about how fuzzy all of these numbers are even as TSMC has more visibility into the future than it usually has because customers want to lock in capacity at the foundry so they don’t miss out on AI opportunities in the future.<br>“Now remember that I believe every customer tells me the truth – every one. You put all the truths together, it's not the truth. So we have to make some of the judgement. You know what I mean, since you are laughing. Because all the customers are very aggressive, right? That's the CEO's job. The CEO has got to be aggressive. So they give me the number for their demand, and I believe they try their best to tell me the truth. So I put all together, all the truths together is not a truth. Mark down that word. So yes, we do a very careful judgment. It may not be correct, but we did it carefully because this is a big money.”
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And it is big money indeed. TSMC announced during the call that it was adding another $100 billion to expand capacity in its Arizona fabs, which brings the total investment in its US operations to $265 billion over several years. (We don’t know if it is three, four, or five years because TSMC is not sure how much customers will want it to ramp or how fast.) We do know that this $100 billion will result on four more fabs in Arizona, and they will be focused on 2 nanometer and smaller transistor geometries.<br>Arizona is currently getting a 3 nanometer foundry, which was already part of the plan, and mirroring new 3 nanometer foundries in Taiwan and Japan. The company is also converting 5 nanometer foundries to 3 nanometers to boost capacity of this node.<br>As you can see below, TSMC’s revenues for the 3 nanometer node are ramping, but 5 nanometer processes still drive slightly more revenue:
You will also not that this is the first quarter where 2 nanometer processes recognized revenue, which started out at $1.21 billion.
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A lot of this driven by AMD’s “Venice” Epyc 9006 CPUs and the MI450 GPUs that are expected later this year. (Perhaps next week, in fact, at AMD’s Advancing AI 2026 event. . . . ) Others will follow as capacity and budgets permit. I assume 2 nanometer chips are more expensive than 3 nanometer chips, and certainly are riskier to make. But someone has to drive the ramp to better yields and AMD is doing it now just as Nvidia did it with 4 nanometer TSMC processes a few years back.<br>Wei reminded everyone that it takes five to seven years...