TSMC enters r40 coverage with fourteen quarters of history and an unusual shape. Companies that grow this fast usually buy the growth with margin. TSMC did the opposite.
Both lines went up
| Quarter | Revenue | Gross margin | Free cash flow | EPS/ADR |
|---|---|---|---|---|
| 2023 Q2 | $15.68B | 54.1% | −$2.72B | $1.14 |
| 2024 Q2 | $20.82B | 53.2% | $5.32B | $1.48 |
| 2025 Q2 | $30.07B | 58.6% | $6.44B | $2.47 |
| 2025 Q4 | $33.73B | 62.3% | $11.89B | $3.14 |
| 2026 Q1 | $35.90B | 66.2% | $11.02B | $3.49 |
| 2026 Q2 | $40.20B | 67.7% | $9.09B | $4.31 |
Revenue is up 156% from the June 2023 trough. Gross margin is up 13.6 points over the same span. Earnings per ADR have gone from $1.14 to $4.31 — a 278% increase, nearly double the revenue growth rate, which is what operating leverage looks like when it is working.
The June 2026 quarter grew 33.7% year over year in dollar terms and 12.0% sequentially. On the Rule of 40 — revenue growth plus free-cash-flow margin — TSMC scores about 56.
Why the margin moved
The release gives the mechanism directly: 77% of wafer revenue came from 7-nanometre and more advanced nodes. Within that, 3nm was 30%, 5nm was 33%, and 2nm reached 3% in its first full quarter of volume production. Leading-edge nodes price at a premium the whole industry has no alternative to, and TSMC is the only company shipping them at volume.
That is the entire story in one number. There is no second foundry at 2nm.
Free cash flow is the volatile line
TSMC's free cash flow does not move like its revenue, because capital expenditure does not. The June quarter generated NT$783B of operating cash flow and spent NT$496B on capex — leaving NT$287B, or about $9.1B. That is down from $11.9B two quarters earlier despite revenue being $6.5B higher, because the capex line rose faster.
The June 2023 quarter was actually free-cash-flow negative (−$2.7B) — a reminder that this is a company whose cash generation is a residual between two very large numbers, and that the capex cycle can swamp a good revenue quarter.
Guidance points higher again
For the September quarter TSMC guided revenue to $44.6–45.8 billion, gross margin to 65–67% and operating margin to 56–58%, at an assumed rate of NT$32 to the dollar. The midpoint implies another 12% sequential increase — and a slight margin decline from 67.7%, which is worth watching given the direction of travel over the last six quarters.
The Street is nearly unanimous
Consensus is Strong Buy at an average target of $547.09, about 26% above the current $435.00. Bernstein raised sharply to $554 from $430 in August and Needham to $530; Barclays sits highest at $650. The lone holdout is TD Cowen at Hold with a $440 target — essentially the current price.
A note on the numbers
TSMC reports in New Taiwan dollars under TIFRS and files with the SEC as a foreign private issuer, so results arrive on Form 6-K and quarterly XBRL does not exist. Revenue, gross margin and per-ADR earnings are taken directly from the US-dollar figures TSMC states in each quarterly release. Free cash flow is TSMC's own reported figure from the quarterly presentation, stated in NT$ and converted at the exchange rate implied by that same release's own NT$ and US$ revenue — not an external rate. One ADR represents five ordinary shares, and per-share figures here are per ADR.
