TSMC’s Q2 results signify strong AI demand, but analysts point to implied Q4 conservatism

Taiwan Semiconductor Manufacturing’s (NYSE:TSM) second quarter 2025 financial results and annual outlook signified particularly strong demand for the chipmaker, but analysts also pointed out a rare implied decline for the fourth quarter.

TSMC shares ticked up 2% during early market action on Thursday, which helped the semiconductor firm crack $1T in market capitalization.

“TSMC delivered a strong beat-and-raise quarter, with the 3Q25 revenue outlook vastly exceeding consensus estimates and implied EPS guidance well ahead of the Street, despite the GM headwinds due to FX and overseas fab production ramp,” said Needham analysts Charles Shi and Ross Cole, in an investor note. “On the back of strong 2Q25 and 3Q25, TSMC raised the FY25 revenue growth outlook from 24-26% to ~30%.”

Needham reiterated its Buy rating and $270 price target on the results.

TSMC indicated artificial intelligence demand has increased over the past three months. Also, the return of Nvidia’s (NVDA) H20 exports to China could generate more upside. However, Needham noted a rare quarter-over-quarter decline forecast for Q4.

“The newly raised FY guidance implies a high single-digit % QoQ decline in 4Q25,” Shi said. “We note that this is the first time since we started TSMC coverage in ’21 that TSMC guides to a decline in Q4, the historically seasonal peak quarter … Management on the call admitted that macro uncertainty has led TSMC to stay conservative on the FY guidance and the Q4 outlook. The unusual shape of the year, in our opinion, may lead investors to wonder if tariff-related pull-ins actually played a role, despite that management has repeatedly denied any change in customer behavior.”

Wells Fargo analysts said the strengthening demand for high-performance computing and artificial intelligence bodes well for Nvidia, Advanced Micro Devices (AMD), Broadcom (AVGO) and Marvell (MRVL).

Wedbush maintained its Outperform rating on TSMC despite the conservative fourth quarter projection.

“We believe the implied Q4 revenue dip (which would represent the first Q4 sequential sales decline since 2015) will be the primary talking point post call,” said Wedbush analysts Matt Bryson and Antoine Legault in an investor note.

“While we wouldn’t be surprised if TSMC is accounting for softer than typical trends in consumer silicon, our bias is to believe TSMC is simply being very (and likely overly) conservative given uncertainty around US policy,” Bryson added.