TSMC Earnings Confirm AI "Supercycle," But Capacity Wall Looms

Taiwan Semiconductor Manufacturing Co. (TSMC), the bellwether for the global tech hardware cycle, smashed expectations with a 35% year-on-year rise in net profit for Q4. More significantly, the company raised its 2026 capital expenditure guidance to a massive $52-$56 billion, confirming that the Artificial Intelligence infrastructure build-out is nowhere near sluggish.

The Data: Unrelenting Demand

• Advanced Nodes: 7nm and smaller processes now account for 77% of TSMC's total wafer revenue, with the cutting-edge 3nm node contributing 28%.
• AI Dominance: High-Performance Computing (HPC), which includes AI accelerators for Nvidia and AMD, accounted for 55% of revenue, eclipsing the smartphone sector.
• Outlook: Management guided for revenue growth approaching 30% in 2026, defying fears of a cyclical downturn.

The Bottleneck Risk

Despite the stellar numbers, a “physical wall” is forming. TSMC CEO C.C. Wei admitted that capacity is “extremely tight.”

• Supply Shortage: Demand for the most advanced chips is reportedly 3x higher than current capacity. Major clients like Google and Nvidia are competing for limited allocation.
• Packaging Crisis: The bottleneck is not just in wafer fabrication but in CoWoS (advanced packaging). Even with new plants in Arizona and Japan coming online by 2027, the near-term supply deficit remains acute.

Market Implication

This is bullish for the Nasdaq 100 and semiconductor stocks, as it confirms demand is real and pricing power remains with the producers. However, for the broader AI sector, the inability to source chips could cap growth rates for software companies dependent on compute power. For the Taiwan Dollar (TWD), the massive capex implies strong foreign direct investment inflows, providing support against the strong USD.