TSMC May Revenue Up 30% YoY; 2Q Guidance Likely to Be Slightly Exceeded

Overview

Bernstein released TSMC's 2Q26 monthly revenue tracking report. Data shows TSMC's May revenue was robust, with April-May combined revenue accounting for 66% of the quarterly guidance midpoint, within a historical normal range. If June revenue follows seasonal patterns, total 2Q26 revenue is expected to slightly exceed the guidance midpoint and align with market consensus. The firm maintains an Outperform rating with a target price of NT$2780, considering TSMC still the most reliable compounder in AI with valuation trading at a discount versus peers.

Core views

Revenue tracking indicates quarterly performance is likely to meet expectations. TSMC's May revenue was NT$417 billion, up 1.5% sequentially and 30% year-over-year. Combined April-May revenue totaled NT$828 billion, representing 66% of the 2Q26 guidance midpoint, squarely in the middle of the historical 60-72% range. The firm calculates that if June revenue follows seasonal trends, total 2Q26 revenue will slightly exceed the guidance midpoint, aligning with market consensus. Adverse effects from exchange rate fluctuations amount to approx. 40 basis points but do not alter the overall conclusion. AI demand drives upward revisions in CapEx and shipments. Benefiting from strong AI demand, optimistic economic prospects, and increased cloud service provider (CSP) capital expenditure, the firm upgraded TSMC's CapEx forecast to reach $56 billion this year, rising to $68 billion in 2027. Simultaneously, global CoWoS advanced packaging shipment forecasts were raised to 1.2 million, 2.2 million, and 2.8 million units for 2026, 2027, and 2028 respectively. Although Amkor and ASE are expected to contribute some capacity, TSMC will maintain its position as the dominant supplier. Profitability growth expectations are robust, valuations remain attractive. The firm forecasts TSMC's revenue growth of 35% this year, with a Compound Annual Growth Rate (CAGR) of 24% for 2027-2028. With margin expansion, earnings per share (EPS) are projected to grow at a CAGR of approx. 28% over the next 2.5 years. The current stock price trades at a forward P/E of 22x, representing a 20% discount to the Philadelphia Semiconductor Index (SOX). Considering steady growth in data center AI and the option value of edge AI, the firm views TSMC as the most reliable AI compounder. Technology leadership remains intact. While Intel Foundry may secure small Apple orders due to geopolitical reasons, and Samsung Foundry advances its "2nm" node, the firm believes Intel's impact on TSMC's revenue is negligible because TSMC's growth is primarily supply-constrained rather than demand-constrained. Furthermore, Samsung's "2nm" is practically closer to TSMC's N3 and remains technologically behind TSMC.

Analysis framework

The firm employs monthly revenue tracking to derive quarterly performance. By analyzing the proportion of the first two months' combined revenue relative to the quarterly guidance (historically ranging from 60-72%) and combining it with seasonal trends to estimate the third month's performance, the method determines whether quarterly results will meet expectations. This approach provides high-frequency earnings validation prior to official quarterly reports. On the demand side, the analysis focuses on AI-driven factors. It links CSP capital expenditure with TSMC's CapEx forecast and quantifies the specific scale of AI chip demand through CoWoS advanced packaging shipment forecasts, thereby supporting revenue and profitability growth predictions. On valuation, relative valuation methods are used. Forward P/E is compared horizontally with the Philadelphia Semiconductor Index (SOX) to identify valuation discount opportunities. The target price is set based on a 20x forward P/E multiplied by the estimated EPS for the next four quarters, reflecting confidence in the certainty of earnings growth.

Methodology notes

• Valuation MethodologyPE/PEG valuation

  Forward P/E Valuation

  The firm sets the target price by multiplying 20x forward P/E by the estimated EPS for the next four quarters. This approach applies to mature growth stocks with high earnings growth certainty and market consensus, directly translating earnings forecasts into price targets.

• Industry/Industrial Analysis FrameworkSupply and Demand Framework

  Demand Analysis Under Capacity Constraints

  The research report notes that TSMC's growth is primarily constrained by capacity rather than demand. In industries characterized by tight supply-demand balance, the focus shifts from demand forecasting to capacity expansion pace (e.g., CapEx, CoWoS shipments), where the speed of capacity release directly determines the revenue ceiling.

• Competition and Strategy FrameworkMoat / competitive advantage

  Technological Leadership and Market Dominance

  The firm assesses TSMC's relative competitive advantage by comparing the technological node progress of Intel and Samsung. It concludes that competitors' technology is effectively lagging or their impact is limited, confirming that TSMC's moat remains intact, supporting its dominant supplier status and pricing power.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• TSMC (2330.TT)

  Core beneficiary, dominant supplier of AI chip manufacturing

  Strengths

  Intact technological leadership, capacity dominance, strong AI demand, margin expansion

  Weaknesses

  Growth constrained by capacity rather than demand, adverse FX headwinds

  Comparison

  Maintains technological lead over Intel Foundry and Samsung Foundry; minimal impact on TSMC from Intel securing small Apple orders

  Risks

  Overall market valuation contraction, Intel regaining technological advantage, geopolitical uncertainties

Key data

• May RevenueNT$417 billionMoM +1.5%, YoY +30%
• Combined April-May Revenue Share66%Shares 2Q26 guidance midpoint, middle of historical 60-72% range
• 2026 CapEx Forecast$56 billionUpdated forecast
• 2027 CapEx Forecast$68 billionUpdated forecast
• CoWoS Shipment Forecast1.2M / 2.2M / 2.8M units2026/2027/2028, updated forecast
• 2026 Revenue Growth Forecast35%Expected growth this year
• EPS CAGR~28%Next 2.5 years, alongside margin expansion
• Forward P/E22xValuation implied by current stock price
• Valuation Discount20%Discount vs. Philadelphia Semiconductor Index (SOX)

Impact & implications

For investors, this report confirms TSMC's core beneficiary status in the AI wave. Monthly revenue tracking reduces uncertainty regarding quarterly performance; if June meets expectations, beating the 2Q guidance midpoint will strengthen market confidence. The upward revision of CapEx and CoWoS shipment forecasts signals that the firm anticipates sustained AI demand rather than short-term pulses. With a current forward P/E of 22x, representing a 20% discount vs. peers, and an expected EPS CAGR of 28%, valuations appear attractive. The report positions TSMC as the "most reliable AI compounder," implying it serves as a core holding for the AI sector, offering both growth certainty and valuation safety margin.

Risks

• Overall market valuation contraction
• Intel regaining and maintaining technological advantage
• Geopolitical uncertainties

What to watch

• Whether June revenue follows seasonal patterns, confirming if 2Q26 performance will slightly exceed the guidance midpoint