TSMC Q1 Profit Surges 58% to Record $18.15B, Warns on Middle East Supply Risk

For the first quarter, Taiwan Semiconductor Manufacturing (TSMC) reported a record-high net profit of NT$572.48 billion ($18.15 billion), above Bloomberg projections of NT$542.38 billion and representing a 58.3% increase over the same period last year. 

Revenue exceeded estimates as well, rising 35% to NT$1.134 trillion ($35 billion). Despite warning indications about supply chain vulnerabilities, the largest contract chipmaker in the world is riding a tsunami of demand for artificial intelligence that doesn't seem to be slowing down.

"AI-related demand continues to be extremely robust," CEO C.C. Wei stated during Thursday's results call. He is supported by the numbers. 61% of TSMC's Q1 sales came from its high-performance computing division, which includes AI and 5G applications. 

Advanced chips defined as 7-nanometer or smaller made up 74% of total wafer revenue, with sub-3-nanometer shipments at 25%.

What Drove the Beat: Nvidia and the Sold-Out Environment

The contract chipmaker produces processors for anything from data centers to consumer electronics. Strong demand from important clients like Apple has persisted. The actual motor, however, is Nvidia, which is currently TSMC's biggest client and whose AI chip designs are straining TSMC's production capabilities.

CNBC talked to senior analyst at Counterpoint Research William Li, who said, "The story for 2026 is as much about resource constraints as it is about growth." Demand is still much higher than supply, and there aren't any big signs that it will slow down.

We think that this sold-out state will continue to be a defining feature of the semiconductor industry until 2026, because companies can't keep goods on their shelves.

TSMC expected sales to grow by more than 30% in U.S. dollars for the whole year of 2026. Guidance for second-quarter revenue: $39 billion to $40.2 billion, which is a 10% increase from the previous quarter and a 32% rise year over year.

The company now thinks that capex will be between $52 and $56 billion, which is as much as 37% more than last year.

The Risk: Middle East War and Chemical Supply Chains

Wendell Huang, the CFO, sent the message. Supply problems for specialty chemicals because of the war in the Middle East could hurt profits, but it doesn't look like they will have a big effect in the near future. Chemical routes and energy supply promises have been made to TSMC "for the time being."

The Strait of Hormuz is where everything stops. Most of the world's chip-grade helium and bromine comes from the Middle East. Production is already being affected by the fighting in Qatar, Israel, and Jordan. The war between the US and Israel against Iran that started in March caused a lot of problems with the supply lines for specialty chemicals. Helium and hydrogen are important parts of modern chip manufacturing. Executives at TSMC said that the company has a backup stock of these materials.

Because it takes time to develop chipmaking capacity from scratch, C.C. Wei generally downplayed worries about competition from Tesla's Terafab joint venture with xAI, SpaceX, and Intel. However, according to recent sources, TSMC's capacity issues are already forcing big clients like Nvidia to postpone next-generation AI chips.

The Technical Picture: 3nm Ramp and Tainan Expansion

As a part of its plan to increase its world capacity, TSMC is building an advanced chip fabrication plant in Tainan, Taiwan.

 Being able to make 25% of wafer sales from sub-3-nanometer nodes is what puts TSMC ahead of its competitors in terms of technology. When making semiconductors, smaller nanometer sizes lead to more compact transistor designs, which are needed for AI jobs because they need more processing power and efficiency gains.

ASML Holding, which makes chip tools and is seen as a bellwether along with TSMC, also reported strong Q1 earnings earlier this week. The whole supply chain is getting better as the AI system is built out.

The profit of NT$572.48 billion proves that TSMC's run was driven by AI. The 58.3% year-over-year increase and fourth straight quarter of record profits show that the "sold-out environment" means that prices can be raised. The full-year revenue growth estimate of 30% or more is based on the supply chain staying the same.

The revenue range for Q2 is $39–40.2 billion, which checks that assumption. Even if demand stays high, the Middle East chemical supply risk is what could throw margins off. Keep an eye on TSMC's safety stock gaps to see if the problems with helium and bromine supplies spread beyond Qatar and Jordan.

The Strait of Hormuz is the timepiece of the trade. Keep an eye on whether military action gets worse enough to threaten the ways that advanced chipmakers use to get chemicals. TSMC has made an inventory. But if the war lasts for a long time, those buffers could run out.

You should keep an eye on Nvidia's next-generation AI chip delays. If TSMC's biggest user is already leaving because of limited space, the capex growth can't come soon enough. The reaction from the supply side is the Tainan fab addition. 2026 will see if it gets there on time.