Taiwan Semiconductor Manufacturing Company (TSMC) announced record May revenue of NT$416.98 billion, marking a 30.1% increase from the same period last year and a 1.5% rise from April. Despite this impressive performance, the company's shares in Taipei declined by 2.17%, closing at NT$2,255, as the broader Taiex index fell 3.31% to 43,225.54. The market's reaction underscores a shift in investor focus from the strength of AI chip demand to TSMC's ability to expand capacity without straining its margins or supply chain.
Record Sales Amidst Growing AI Demand
TSMC's May revenue surpassed the previous record of NT$415.19 billion set in March, positioning the company for what could be its strongest quarter yet. For the first five months of 2026, cumulative revenue reached NT$1.962 trillion, up 30.0% year-on-year. The strong sales reflect robust AI spending, which is now translating into tangible results for chipmakers. Taiwan's overall exports in May surged 51.7% to $78.48 billion, driven by demand for AI chips and cloud technologies, according to Reuters.
Capacity and Margin Concerns Weigh on Sentiment
While TSMC's sales numbers align with its second-quarter forecast of revenue between $39.0 billion and $40.2 billion and a gross margin of 65.5% to 67.5%, investors remain wary. The company's CEO, C.C. Wei, acknowledged the pressure during the June 4 shareholder meeting, stating, "Customer demand is so high, and we can only support so much. We are already working very hard." He emphasized TSMC's efforts to avoid becoming a bottleneck in the global supply chain. However, concerns persist that building new fabs abroad and ramping up 2-nanometer production could erode margins. Additionally, geopolitical tensions and potential input cost increases from Middle East instability add to the uncertainty.
Competition and Diversification Efforts
The landscape is evolving as major AI players seek to diversify their supply chains. Reports indicate that Alphabet's Google has ordered over three million tensor processing units from Intel for 2028, and Nvidia is reportedly evaluating Intel's technology for future chips. This shift highlights a growing urgency among AI leaders to reduce reliance on TSMC. Jacob Bourne, a tech analyst at eMarketer, noted, "It's evidence that AI's biggest players are racing to diversify a supply chain still heavily concentrated in TSMC."
Market Impact and Outlook
TSMC's U.S.-listed ADRs also fell in premarket trading, dropping 3.85% to $411.44 from Tuesday's close of $427.92. The decline mirrored the selling pressure in Taipei. Investors are now closely watching for June sales data, which TSMC will report on July 10. This upcoming figure will be crucial in determining whether May represented a peak or if the company can sustain its momentum amid ongoing capacity and margin challenges.
Broader Implications for the Semiconductor Sector
TSMC's results and the market's reaction carry significant implications for the broader semiconductor industry. The company's advanced technologies, particularly at 7nm and below, accounted for 74% of wafer revenue in the first quarter, while high-performance computing—encompassing data-center and AI chips—drove 61% of revenue. As AI spending continues to grow, TSMC's ability to manage capacity and margins will be closely monitored by investors and competitors alike.
