TSMC Q4 Preview: The AI Gatekeeper Takes Center Stage

Ahead of TSMC's highly anticipated earnings release on January 15, the options market is flashing cautionary signals as the put/call ratio has surged to an elevated 1.64 on total open interest of 1.76 million contracts, reflecting heightened demand for downside protection into the report. Implied volatility stands at 43.33%, commanding a substantial premium over the 31.25% historical volatility, while the IV Rank of 22 and IV Percentile of 67% suggest options pricing is running moderately rich as traders brace for potential post earnings turbulence.

The defensive positioning in the derivatives market indicates that institutional investors are hedging against the risk that even robust results may fail to satisfy lofty expectations surrounding the semiconductor giant's forward guidance.

– In USD terms, the consensus estimate for Q4 revenue is US$32.38 billion, up 20% YoY and down 2% QoQ, compared to the prior guidance range of US$32.2-33.4 billion. In NTD terms, Q4 revenue is NT$1,046 billion, up 20% YoY and up 6% QoQ.

– The consensus estimate for Q4 gross margin is 60.4%, up 1.4 percentage points YoY and up 0.9 percentage points QoQ, compared to the prior guidance range of 59%-61%.

– The consensus estimate for Q4 operating margin is 50.7%, up 2.2 percentage points YoY and up 0.1 percentage points QoQ, compared to the prior guidance range of 49%-51%.

– In USD terms, the consensus estimate for Q4 net income is US$14.58 billion, up 26% YoY and down 3% QoQ.

It is worth noting that exchange rate fluctuations have a significant impact on financial results, leading to a notable discrepancy between NTD-based and USD-based performance. Based on the Q4 exchange rate guidance (USD/NTD=30.6) provided in last quarter's earnings report, Q4 revenue in USD terms would reach US$34.19 billion, already exceeding the guidance range of US$32.2-33.4 billion.

Current market consensus expects TSMC's full-year 2026 USD revenue to grow approximately 25% YoY. Last quarter, TSMC management indicated that 2024-2029 AI revenue (GPU + ASIC + HBM controller) is expected to exceed the previous mid-40% CAGR guidance. It's worth watching whether these figures will be updated in this earnings report.

The manufacturing of AI chips relies entirely on TSMC, meaning the supply ceiling for computing power is dictated by its CoWoS (Chip-on-Wafer-on-Substrate) capacity.

Goldman Sachs just dropped massive CoWoS forecasts for TSMC. They raised 2026E shipments to 1,185k wafers (up from 1,080k) and 2027E shipments to a whopping 2,195k wafers (up from 1,566k). That's 85% YoY growth. The AI chip boom is real, and TSMC's advanced packaging moat just got deeper. The market remains focused on the extent to which TSMC can capitalize on the AI upside.

Last quarter, TSMC management also indicated that CoWoS capacity continues to ramp up, and specific guidance will be updated in 2026. Advanced packaging revenue contribution is now approaching 10%.

Recently, U.S. semiconductor equipment stocks have outperformed other semiconductor companies by a wide margin. In addition to pricing in a turnaround in memory fab expansion momentum, this rally also reflects bets on a capex increase in 2026 from TSMC, the leading foundry.

Given the inherent cyclicality of the semiconductor industry, TSMC has historically been very cautious about capacity expansion plans, only committing when it sees long-term sustainable demand. As for recent market concerns about AI chip oversupply, this can essentially be dismissed. The current consensus estimate for TSMC's full-year 2026 capex is approximately US$45.4 billion, higher than the 2025 capex guidance range of US$40-42 billion. We will pay close attention to any guidance updates in this earnings report.

Overall, as the gatekeeper of AI chip capacity, TSMC's every move is closely watched by global AI-themed investors. Management's guidance on the industry outlook carries more weight than current-quarter financial performance.

Historically, TSMC's stock price has risen after seven of its last nine earnings announcements.

Check out moomoo's past insights on TSM: