Taiwan Semiconductor Manufacturing (TSM) shares are up about 35% so far this year — respectable gains by any measure. Yet that performance still lags behind the 67% surge in the PHLX Semiconductor Sector index over the same period. But this divergence could be set for a reversal next week. On July 16, the world’s largest semiconductor foundry will release its second-quarter results, and a convergence of positive factors may be poised to accelerate the chip giant’s share price once again.
TSMC is demonstrating rare pricing power. According to industry sources, the company has recently notified major clients — including Nvidia, Apple, and AMD — of plans to raise wafer prices by 5% to 10%, with the increases covering advanced process nodes such as 3nm and 5nm, as well as 7nm.
What makes this round of price hikes unusual is that it breaks with industry convention. In the past, pricing for new process nodes tended to be higher during initial ramp-up but would gradually adjust downward as yields stabilized — making price increases on the same node uncommon. Today, however, the AI investment boom has fundamentally changed this dynamic. Surging orders for AI semiconductors from global tech giants have left advanced process capacity unable to keep up with demand.
In its latest report, JPMorgan noted that most HPC clients have already locked in 3nm and 2nm capacity through 2027. Utilization rates for 3nm production lines are estimated to exceed 120% this year and remain above 110% next year. This supply-demand imbalance has handed TSMC unprecedented bargaining power.
Strong pricing power is translating directly into improved profitability. JPMorgan forecasts that TSMC’s second-quarter gross margin will reach 69.5% — approaching the 70% mark and surpassing consensus expectations. Key drivers include near-full utilization of 3nm production lines, rush-order premiums from AI clients competing for capacity, and foreign exchange tailwinds from a depreciating New Taiwan dollar.
Notably, this elevated margin level is considered sustainable. JPMorgan projects that even with the initial margin dilution from 2nm volume production and overseas fab ramps, TSMC’s mid-to-long-term gross margins should remain firmly within the 67% to 70% range.
AI computing demand is the core narrative driving TSMC’s current growth cycle. JPMorgan has raised its forecast for TSMC’s data-center AI revenue compound annual growth rate from 2024 to 2029 to 69%, above the company’s own guidance of 57% to 59%. Investment bank Needham estimates that TSMC’s AI-related revenue could reach $90 billion by 2029.
The market broadly expects TSMC’s Q2 earnings per share to reach $3.83, representing roughly 55% year-over-year growth. Given that Q1 earnings already delivered nearly 65% annual growth, and with the new round of price hikes now taking effect, there remains room for a Q2 beat.
The stock currently sits about 10% below its 52-week high. As the July 16 earnings release approaches, market expectations for an upward revision to TSMC’s full-year revenue guidance are building. With AI-driven demand continuing to strain advanced process capacity, TSMC’s upward trajectory may be far from over.
