Image Source: TradingView
By Brian Nelson, CFA
Taiwan Semiconductor (TSM) recently reported second quarter 2026 results that came in better than expected. Second quarter revenue increased 36%, while net income and diluted earnings per share both advanced more than 77%. On a sequential basis, revenue increased 12%, while net income increased 23.4%. In US dollars, second quarter revenue was $40.2 billion, up nearly 34% year-over-year and 12% sequentially. For the quarter, gross margin was 67.7%, operating margin was 60.3%, and net profit margin was 55.6%.
“In the second quarter, shipments of 2-nanometer accounted for 3% of total wafer revenue; 3-nanometer accounted for 30%; 5-nanometer accounted for 33%; and 7-nanometer accounted for 11%. Advanced technologies, defined as 7-nanometer and more advanced technologies, accounted for 77% of total wafer revenue (second quarter press release).”
Management had the following to say about the results:
Our business in the second quarter was supported by strong demand for our leading-edge process technologies. Moving into third quarter 2026, we expect our business to be supported by continued strong demand for our leading-edge process technologies, including the steep ramp-up of our 2-nanometer technology.
Free cash flow during the second quarter came in at NT$287.36 billion, up from NT$199.85 in last year’s quarter. Looking to the third quarter of 2026, the executive team expects revenue to be between $44.6-$45.8 billion, gross margin to be between 65%-67%, and operating profit margin to be between 56%-58%. The consensus estimate called for revenue of just $43.1 billion. For 2026, revenue is expected to increase by slightly above 40% in US dollar terms. We like the momentum behind Taiwan Semiconductor’s pure play foundry business model, and the company remains one of our favorite ideas.
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Brian Nelson owns shares in SPY, SCHG, QQQ, QQQM, DIA, VOT, RSP, and IWM. Valuentum owns SPY, SCHG, QQQ, QQQM, VOO, and DIA. Brian Nelson’s household owns shares in HON, DIS, HAS, NKE, DIA, RSP, SCHG, QQQ, QQQM, and VOO. Some of the other securities written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.
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