Taiwan Semiconductor Manufacturing (TSM 0.32%) is one of the most important companies in the world, as it is the largest semiconductor foundry. Many of the devices and services we use today wouldn't be possible without TSMC. The chips it manufactures power smartphones, computers, data centers, cars, factories, and more.
Not surprisingly, TSMC has been clocking impressive revenue and earnings growth, driven by the secular growth of the global semiconductor market. As a result, TSMC stock has delivered impressive returns of 62% to investors over the past year. The good news is that this semiconductor company is on track to clock solid growth once again in 2026.
Let's look at the factors driving Taiwan Semiconductor's growth in 2026 and check out where the stock could be after a year.
Image source: TSMC.
TSMC's growth is going to exceed the market's expectations this year
Taiwan Semiconductor released its fourth-quarter 2025 results on Jan. 15. The chip manufacturer not only crushed Wall Street's expectations by a nice margin by recording its seventh consecutive quarter of double-digit growth, it also guided strongly for the current quarter.
TSMC's Q4 revenue increased by 25.5% from the year-ago period to $33.7 billion. Full-year revenue grew by 36% to $122.4 billion. Even better, TSMC's adjusted earnings increased by an impressive 51% from 2024 levels to $10.65 per share last year. The outlook, however, was the icing on the cake.
Consensus estimates were projecting a 24% increase in TSMC's revenue this year. The company is confident of achieving a top-line jump of close to 30% in U.S. dollar terms in 2026. CEO C. C. Wei remarked on the latest earnings call that he sees the market for Foundry 2.0 (an end-to-end semiconductor manufacturing model that includes chip design, fabrication, packaging, and testing) growing by 14% in 2026.
TSMC management believes it can grow faster than the end market, suggesting it is on track to capture a larger share of the Foundry 2.0 space. The company added that artificial intelligence (AI) accelerator chips, which accounted for a high-teens share of its revenue last year, will remain a strong growth driver in 2026.
The proliferation of AI across consumer, enterprise, and sovereign segments should drive greater chip demand. This is great news for TSMC investors, as it fabricates chips for leading AI chip designers such as Nvidia, Advanced Micro Devices, Marvell Technology, and Broadcom. Additionally, TSMC is well-positioned to benefit from the growth of AI-enabled smartphones and personal computers (PCs), as it produces chips for Apple and Qualcomm in addition to serving the PC market through AMD.
Market research firm Gartner anticipates global AI spending will hit $2 trillion in 2026, as compared to $1.5 trillion last year. A nice chunk of that spending will go toward hardware components powering data centers, smartphones, and PCs, indicating that TSMC is on track for another year of secular growth.
NYSE: TSM
Key Data Points
This is also the reason why TSMC is set to aggressively ramp up its 2026 capital spending. It forecasts $54 billion in capital expenditure (capex) this year at the midpoint of its guidance range, 33% more than it spent last year. It plans to spend around 70% to 80% of its 2026 capex on advanced process nodes, which is not surprising, as chips manufactured using these nodes are deployed to tackle AI workloads across various applications.
Another important factor worth noting is that Taiwan Semiconductor's gross margin improved by 3.8 percentage points in 2025. This was possible because of an improvement in the company's factory utilization rate -- a measure of operational efficiency that compares the actual output of a factory to its potential output. TSMC is also focused on keeping costs in check.
Importantly, TSMC expects its utilization rate to improve moderately in 2026, though management points out that the initial ramp-up of its 2-nanometer (nm) process node will contribute to a 2% to 3% dilution in gross margin this year.
But then, Taiwan Semiconductor is reportedly going to charge a premium of 10% to 20% for its 2nm chips as compared to the current flagship 3nm node. Also, the company is expected to hike the price of its chips across the board in 2026 owing to tight supply. All this suggests that TSMC could replicate its strong bottom-line performance in 2026 as well, and that's likely to translate into a solid jump in the stock price.
Here's how much upside investors can expect in the coming year
Analysts are forecasting an increase of 35% in TSMC's earnings in 2026. However, we have already seen that TSMC has guided for 30% revenue growth this year. Its earnings growth could be stronger, given the price hikes discussed above as well as the premium for the 2nm chips.
But even if its earnings increase by 35% in 2026 to $14.38 per share (from $10.65 per share last year) and it trades at 33 times earnings after a year (in line with the tech-laden Nasdaq-100 index), its stock price could jump to $475. That would be a potential jump of 39% from current levels. So this AI stock is likely to sustain its impressive rally in the coming year, and that's why investors should consider buying it following its latest quarterly performance.
