As Taiwan Semi's Earnings Wow, Is It Time to Buy on Weakness?

Taiwan Semiconductor's Results Are Lifting the Shares of Several Portfolio Names

Early on Thursday morning, Taiwan Semiconductor (TSM) released the first-quarter financial results, revealing unadjusted American Depository Receipts of $3.49 on revenue of $35.898 billion. (The earnings per share in Taiwanese currency was NT$22.08). These top- and bottom-line results beat Wall Street's expectations. The sales print was good enough for year-over-year growth of 40.6%.

CFO Wendell Huang commented in the press release: “Our business in the first quarter was supported by strong demand for our leading-edge process technologies. Moving into second quarter 2026, we expect our business to be supported by continued strong demand for our leading-edge process technologies.”

Operations (Converted to USD)

Taiwan Semi -- against revenue growth of 40.6% -- for the quarter saw cost of sales growth of 10.7% to $12.117 billion. That left a gross profit of $23.781 billion (+52.3%) as gross profit improved from 58.8% all the way to 66.2%. Operating expenses grew 10.4% to $2.975 billion, leaving a unadjusted operating income of $20.8509 billion (+61.9%). This took operating margin from 48.5% all the way up to 58.1%. Needless to say that corporate execution here is stellar.

After accounting for interest, other income and expenses as well as taxes, unadjusted net income for the quarter stood at $18.131 billion (+58.8%). This worked out to a fully diluted unadjusted American Depository Receipts of $3.49. That compares very well to the year-ago result of $2.12.

Guidance

Looking out to the full year of 2026, TSM is projecting revenue of $39 billion to $40.2 billion, which would work out to annual growth of at least 30%. This is well above the $37.9 billion or so that Wall Street had expected. Assuming an exchange rate of 31.7 New Taiwan Dollars to one U.S. dollar, the Taiwan Semi sees a gross margin of 65.5% to 67.5% and an operating margin of 56.5% to 58.5%.

Fundamentals (Converted to USD)

For the period reported, TSM generated an operating cash flow of $22.125 billion. Out of that number came capital spending of $11.103 billion. This left free cash flow of $11.022 billion. Out of this number, the company paid out $4.104 billion in cash dividends.

Moving on to the balance sheet, TSM ended the period with a cash position of $105.526 billion and inventories of $9.714 billion. That made for current assets of $133.031 billion. Current liabilities add up to $53.463 billion including just $4.873 billion in shorter-term debt. This puts the firm's current and quick ratios at 2.49 and 2.31 respectively, which is excellent.

Total assets amount to $270.114 billion. There is no value claimed for anything intangible. That's impressive. Total liabilities less equity comes to $85.097 billion including $26.822 billion in longer-term debt. The company could handle its entire debt load three and a half times over out of pocket if need be. This balance sheet is pristine.

My Take? Wow!

Impressive. That's how I would describe the quarter. That's how I would describe the guidance, driven by demand for AI-capable chips. That's how I would describe the cash flows. That's how I would describe the balance sheet. I think TSM has to be bought on weakness. That's my opinion.

Readers can see that TSM rallied out of an inverted head-and-shoulders pattern of bullish reversal this past winter. What is happening this morning is that TSM is adding a handle to a cup pattern. This is ultimately a bullish pattern of continuation. There is an unfilled gap down to the $346 level that could end up being the depth of said handle. That said, the pivot is the right-side apex of the cup, which is $382.

Relative strength and the daily moving average convergence divergence are both bullishly postured at this time. A take-and-hold of the $382 pivot could create a target price in the $455 to $460 range. This dip is likely an opportunity.

At the time of publication, Guilfoyle had no position in any security mentioned.