How TSM (Taiwan Semiconductor Manufacturing Company) Makes Money in 2026: A Deep-Dive With Income Statement

Welcome to the Value Sense Blog, your resource for insights on the stock market! At Value Sense, we focus on intrinsic value tools and offer stock ideas with undervalued companies. Dive into our research products and learn more about our unique approach at valuesense.io

Explore diverse stock ideas covering technology, healthcare, and commodities sectors. Our insights are crafted to help investors spot opportunities in undervalued growth stocks, enhancing potential returns. Visit us to see evaluations and in-depth market research.

Understanding how a semiconductor foundry like Taiwan Semiconductor makes money is essential for investors and anyone interested in the business of semiconductors. In this post, we break down Taiwan Semiconductor's quarterly income statement (Q4 2025) using a Sankey chart to visualize the financial flows — what comes in, where it goes, and what's left as profit.

* *

Quick Taiwan Semiconductor Overview

Taiwan Semiconductor operates as the world's leading semiconductor foundry, manufacturing advanced chips for fabless companies like Apple, Nvidia, and AMD. Revenue comes primarily from wafer fabrication services across various applications, including high-performance computing, smartphones, IoT, automotive, and others. While detailed segment breakdowns are aggregated in recent reporting, the "Other" category encompasses all streams totaling the full revenue base, reflecting broad demand in AI, mobile, and emerging tech.

Revenue Breakdown

• Total Revenue (Q4 2025): $34.0B (+21.6% YoY)
  • Other (All Segments): $34.0B (100% of total)
  • Growth is powered by surging demand for advanced nodes in AI accelerators, high-performance computing, and smartphone processors amid global chip shortages and tech expansion.

Gross Profit and Margins

• Gross Profit: $21.2B (62.3% gross margin)
  • Cost of Revenue: $12.8B (+11.7% YoY)
  • Taiwan Semiconductor maintains robust margins due to its scalable manufacturing model, leadership in cutting-edge process nodes (e.g., 3nm, 2nm), and high utilization rates at fabs.
• Most costs come from wafer production, materials, and facility operations.

Operating Income and Expenses

• Operating Income: $18.3B (+33.7% YoY, 53.9% margin)
• Operating Expenses: $2.9B (+2.7% YoY)
  • R&D: $2.1B (+14.4% YoY, 6.2% of revenue) — focused on next-generation nodes like A16 and beyond, EUV lithography advancements, and packaging technologies for AI chips
  • SG&A: $0.8B (+-19.1% YoY, 2.2% of revenue) — reflecting cost controls in administrative and sales functions amid scale efficiencies
  • Taiwan Semiconductor continues to prioritize innovation while maintaining efficiency through disciplined spending and operational leverage.

Net Income

• Pre-Tax Income: $19.3B (+33.2% YoY, 56.6% margin)
• Income Tax: $2.8B (14.7% effective tax rate)
• Net Income: $16.5B (+36.3% YoY, 48.3% net margin)
• Taiwan Semiconductor converts a high portion of sales into profit due to scalability, pricing power in advanced tech, and favorable non-operating items like net interest income.

Most investors waste time on the wrong metrics. We've spent 10,000+ hours perfecting our value investing engine to find what actually matters.

Want to see what we'll uncover next - before everyone else does?

Find Hidden Gems First!

What Drives Taiwan Semiconductor's Money Machine?

• Wafer Fabrication Services: 100%+ of revenue from foundry manufacturing, capitalizing on exclusive access to leading-edge processes
• Advanced Node Adoption: Key metric with 3nm+ chips driving over 20% YoY revenue growth, fueled by AI and HPC demand
• R&D Investment: $2.1B quarterly spend on process tech and capacity expansion to sustain moat
• Future growth areas: Automotive and IoT scaling, though not yet segmented distinctly, position TSM for diversified expansion beyond smartphones and HPC

Visualizing Taiwan Semiconductor's Financial Flows

The Sankey chart below visualizes how each dollar flows from gross revenue, through costs and expenses, down to net income. This helps investors spot where value is created, what areas weigh on profits, and how efficiently the company operates.

• Most revenue flows into gross profit, with operating expenses (especially R&D) taking the largest chunk.
• Even after significant investments, 48.3% of revenue drops to the bottom line.

Key Takeaways

• Taiwan Semiconductor's money comes overwhelmingly from semiconductor foundry services
• High gross and net margins illustrate the power of Taiwan Semiconductor's asset-light foundry model
• Heavy investment in R&D, balanced by efficiency in operating costs
• Ongoing growth is driven by AI demand and advanced node ramps

Explore More Investment Opportunities

For investors seeking undervalued companies with high fundamental quality, our analytics team provides curated stock lists:

📌 50 Undervalued Stocks (Best overall value plays for 2026)

📌 50 Undervalued Dividend Stocks (For income-focused investors)

📌 50 Undervalued Growth Stocks (High-growth potential with strong fundamentals)

🔍 Check out these stocks on the Value Sense platform for free!

FAQ About Taiwan Semiconductor's Income Statement

1. What is the main source of Taiwan Semiconductor's revenue in 2025?

Taiwan Semiconductor generates over 100% of its revenue from semiconductor foundry services (Other category). This encompasses wafers for high-performance computing, smartphones, IoT, automotive, and more.

2. How profitable is Taiwan Semiconductor in Q4 2025?

Taiwan Semiconductor reported net income of $16.5B in Q4 2025, with a net margin of approximately 48.3%, reflecting strong profitability driven by high gross margins and operational leverage.

3. What are the largest expense categories for Taiwan Semiconductor?

The biggest expenses on Taiwan Semiconductor's income statement are operating expenses, particularly Research & Development (R&D) and Sales, General & Administrative (SG&A) costs. R&D investment reached $2.1B in Q4 2025, as Taiwan Semiconductor prioritizes advanced process nodes and AI technologies.

4. Why does Other operate at a loss?

N/A for this analysis, as all segments aggregate profitably under Other with no reported loss-making divisions in Q4 2025 data.

5. How does Taiwan Semiconductor's effective tax rate compare to previous years?

Taiwan Semiconductor's effective tax rate in Q4 2025 was 14.7%, consistent with previous years. This low rate is primarily due to international structuring and tax incentives in Taiwan for semiconductor manufacturing.