TSMC adds USD $100 billion Arizona spend on AI demand

Mon, 20th Jul 2026 (Yesterday)

Taiwan Semiconductor Manufacturing Co said it will invest an additional $100 billion in Arizona and raised its full-year capital spending plan.

The new Arizona spending will fund more semiconductor logic wafer fabs for 2-nanometre and below technologies, along with advanced packaging fabs. The move reflects strong multi-year demand from leading US customers.

TSMC reported second-quarter revenue of $40.2 billion, up 12.0% from the previous quarter in US dollar terms. It forecast third-quarter revenue of $44.6 billion to $45.8 billion, pointing to another 12% sequential increase at the midpoint.

The company also lifted its full-year 2026 capital budget to between $60 billion and $64 billion. Earlier guidance had been lower, and executives said demand kept rising as the year progressed.

Growth continues to centre on advanced manufacturing. In the second quarter, 2-nanometre contributed 3% of wafer revenue. Three-nanometre accounted for 30%, 5-nanometre for 33%, and 7-nanometre for 11%. Technologies at 7-nanometre and below made up 77% of wafer revenue.

High-performance computing remained the main driver of the business. Revenue from that segment rose 20% quarter on quarter and represented 66% of second-quarter sales. Smartphone revenue fell 4% and accounted for 22%. Automotive rose 15% and represented 4%.

Profitability remained strong, though management signalled pressure from the rapid ramp-up of newer production and overseas expansion. Gross margin rose to 67.7% in the second quarter, but the company expects third-quarter gross margin of 65% to 67%.

Management said the sharp increase in 2-nanometre output would reduce gross margin by about three to four percentage points in the second half. Overseas fab expansion is also expected to weigh on margins over the next several years.

Even so, TSMC struck a confident tone on demand. It now expects full-year 2026 revenue growth to be slightly above 40% in US dollar terms.

"Thus, our conviction in the multi-year AI megatrend remain very high. Supported by our robust technology differentiation and the broad customer base, we now expect our full-year 2026 revenue growth to be slightly above 40% year over year in US dollar terms," said C.C. Wei, Chairman and Chief Executive Officer, Taiwan Semiconductor Manufacturing Co Ltd.

Executives linked the stronger outlook directly to artificial intelligence demand, particularly in data centres. Wei said the market is broadening beyond AI accelerators and is now lifting demand for central processing units as well.

He said the rise of agentic AI is changing chip demand inside AI data centres, increasing the role of CPUs alongside GPUs and other accelerators. Because TSMC manufactures chips for a wide range of processor designers, management said the trend works in its favour across architectures including x86, Arm-based and RISC-V.

TSMC is also checking data-centre construction progress, rack deployment and power availability as part of capacity planning. That matters because some investors have questioned whether chip demand could outrun the pace of infrastructure build-out.

Wei said TSMC is trying to avoid a situation in which customers take delivery of chips that cannot be deployed promptly. The company monitors the build-out of AI data centres closely when making investment decisions, he said.

Arizona build-out

The extra $100 billion for Arizona comes on top of previous commitments in the state. Wei said total planned investment there now stands at $265 billion.

He did not give a fixed timetable for the new spending, saying the pace would depend on market conditions and customer demand. He added that the company plans to move as fast as possible.

"How many fabs? Many.

So actually, let me say that there's probably additional four or more fabs will be built," said Wei.

That figure includes front-end and back-end facilities, according to his remarks during the question-and-answer session. TSMC also said it is building 13 leading-edge and advanced packaging fabs in Taiwan over the next several years, while continuing its expansion in Japan.

The company described its planning process as a mix of top-down and bottom-up demand analysis. Wei said TSMC works closely with customers and their own customers, particularly cloud service providers, when assessing demand over several years.

He also acknowledged the challenge of turning ambitious customer forecasts into a workable investment plan.

"I believe every customer tell me the truth, everyone. You put all the truth together, it's not a truth," said Wei.

Capacity strain

One of the clearest messages from the update was that TSMC still sees a substantial gap between demand and available supply in leading-edge manufacturing. Wei said the gap remains large across 3-nanometre and below, and suggested current market assumptions may still understate the shortfall.

He also said demand for advanced packaging remains so strong that it is limiting customer growth. The shortage prompted a rare comment from TSMC welcoming alternative packaging options from competitors if they help ease pressure on the broader supply chain.

"Well, let me say that our packaging capacity is so tight that now it limits my customers' growth. So we welcome that additional flexibility in the market and so that will help TSMC's frontend wafer business growth, which is a majority part of TSMC's business," said Wei.

The company is adding new 3-nanometre capacity in Taiwan, Arizona and Japan. It is also converting some 5-nanometre tools in Taiwan for 3-nanometre production. Management said it is pushing productivity gains across fabs and adjusting capacity between 7-nanometre, 5-nanometre and 3-nanometre lines.

At the mature-node end of the market, TSMC drew a distinction between AI-linked demand and weaker consumer-led segments. Wei said power management chips and image sensors are in short supply because AI data centres need more power control and environmental sensing. Other mature-node areas tied to consumer products remain weaker, he said.

Technology roadmap

TSMC also offered an update on A14, its next major process generation after N2. Wei said development is on track and customer engagement is ahead of schedule. Risk production is due to start in 2027, with volume production planned for 2028.

He said A14 is the second generation of nanosheet transistors. Compared with N2, the technology is expected to provide a 10% to 15% speed improvement at the same power, or a 25% to 30% power improvement at the same speed, along with close to 20% chip density gain.

The company has also introduced A13 and A12 as later extensions of the same family. Both are scheduled for volume production in 2029.

For investors, the more immediate issue is how much spending TSMC may need over the next several years. Management declined to publish a three-year capital expenditure forecast. Huang nonetheless made clear that spending is likely to keep rising if demand holds.

"Last time, we said our CapEx in the next three years will be significantly higher than the CapEx in the past three years. Now the CapEx in the next three years will be even more significantly higher than the past three years," said Wendell Huang, Senior Vice President and Chief Financial Officer, Taiwan Semiconductor Manufacturing Co Ltd.

TSMC ended the second quarter with cash and marketable securities of TWD3.5 trillion, or $110 billion. It spent TWD496 billion on capital expenditure during the quarter and generated about TWD783 billion in cash from operations.

For now, the company's message is that AI demand is still intensifying rather than levelling off. Wei said that is affecting decisions across manufacturing, packaging and global footprint.

"Well, simply put, the most important reason is because that demand continues to increase. And we feel the pressure from the customer to drive TSMC, not drive, actually to cooperate with TSMC for the capacity increase. That's one of the major reasons.