What AI Bubble? This Is a 'Megatrend,' TSM Says

I’ve just finished listening to the Taiwan Semiconductor (TSM) Q4 2025 earnings call and reviewing the company’s corresponding presentation.

Both push back hard on what many are calling the "AI bubble," with the TSM management team referring to AI as a "megatrend." Before we go any further, let’s make sure we are on the same page when it comes to the term “megatrend.”

The term was coined by John Naisbitt with his 1982 book "Megatrends: Ten New Directions Transforming Our Lives" and is defined as “a large-scale, long-term, transformative shift with global reach and significant impact, shaping societies, economies, and industries for decades, unlike short-lived fads or shocks.”

What TSM said early on Thursday morning is that it now sees its AI-related revenue compound annual growth rate rising to the mid-to-high 50% over the 2024 to 2025 period. That is a key driver in TSM’s overall revenue CAGR of mid-to-high 30% over the same time frame. That level of AI growth tells us AI-related revenue at TSM will ramp significantly over the coming years and will represent far more than the high-teens total revenue percentage it did in 2025.

C.C. Wei, TSM’s chairman and CEO, framed it this way on the earnings call:

"Looking ahead, we observe increasing AI model adoption across consumer, enterprise and sovereign AI segment. This is driving the need for more and more computation, which supports the robust demand for leading-edge silicon.

"In addition, our customers, and customers who are mainly in the cloud service providers, are also providing strong signals and reaching out directly to request the capacity to support their business. Thus, our conviction in the multi-year AI megatrend remains strong, and we believe the demand for semiconductors will continue to be very fundamental."

Given that outlook, TSM ‘s capital spending plan, as it looks to address demand for the 2028 to 2029 time frame, is for it to jump to $52 billion to $58 billion this year, up from $40.9 billion last year and $29.8 billion in 2024. For those of you who own shares of Applied Materials (AMAT) , Lam Research (LRCX) or ASML Holdings (ASML) , this is a very, very positive data point. Reading between the lines, it appears TSM will still have some capacity constraints in the coming quarters, but those should improve as time goes on.

We see all of that very reaffirming for our shares of Nvidia (NVDA) , Marvell (MRVL) , Broadcom (AVGO) and Arista Networks (ANET) . We will continue to follow AI adoption and usage metrics, recognizing that as the incremental growth rate slows risk of potential overcapacity grows.

Outside of AI and data center, TSM commented that demand for networking processors remains strong, another positive for those stocks I just mentioned. But on the topic of PC and smartphones, TSM shared it expects “minimal unit growth” due to higher memory prices. That reaffirms our decision to downgrade Qualcomm (QCOM) shares to a Four rating earlier this week and unwind more of that position on Wednesday. Our plan will be to use any subsequent strength in QCOM shares to complete our exit.

We’ll add as well the implied buildout of AI and data center capacity means the electric power pain point will also remain, and as we know, that is a nice tailwind for our shares of Eaton (ETN) . We expect that the discussion around electric utility capital spending levels and those multi-year plans in the coming weeks will be a nice catalyst for the shares.

TSM’s Q1 2026 Guidance

The company sees its Q1 2026 revenue landing between $34.6 billion and $35.8 billion. On a year-over-year basis, that is up about 38% if we use the midpoint of that forecast. But when we look at it on a sequential basis, it’s far more revealing. We say this because the 4.3% sequential increase is very different than the historical revenue drop we see between TSM’s December and March quarters.

Reading between the lines and comments from Foxconn and others, with smartphone and PC shipments likely to see the usual seasonal decline between the December and March quarters, TSM’s March quarter guidance tells us AI and data center demand remains robust.

And, as if that wasn’t clear enough, TSM guided its 2026 revenue to be up close to 30% year-over-year due to demand from AI accelerators.

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At the time of publication, TheStreet Pro Portfolio was long NVDA, MRVL, AVGO, ANET, QCOM and ETN.