TSMC’s July 16 earnings call beat across the board: 2Q26 revenue came in at $40.2 billion (up 33.7% year over year and 12.0% quarter over quarter), with gross margin of 67.7%, operating margin of 60.3%, and EPS of NT$27.25. Revenue landed at the top of the company’s own guidance, and gross margin came in above the high end of the guided range (TSMC press release). By platform, HPC grew 20% sequentially and now makes up 66% of revenue. By node, 2nm began contributing this quarter (3% of wafer revenue), and advanced nodes (7nm and below) together account for 77% (earnings call transcript, CFO remarks).
From the transcript (TSMC 2Q26 earnings call, CFO Wendell Huang): “HPC increased 20% quarter over quarter to account for 66% of our second-quarter revenue.”
Insightology View:
The gross margin story is better than it looks
In this piece we want to spend extra time on gross margin, because that is where the market disagrees the most.
The 2Q margin beat wasn’t just about cost improvements and higher utilization. There was a demand component too: N3 capacity is extremely tight, and some customers paid rush order fees, lifting N3 average selling prices meaningfully from the prior quarter.
Looking ahead, the 3Q guide slips only slightly from last quarter despite 3 to 4 percentage points of dilution from the N2 ramp. That is early validation of our view that this capex upcycle will not send gross margins off a cliff.
Based on our research, TSMC is negotiating a broad foundry price increase with customers for 2027 (we estimate 10% to 15%), which should offset the margin dilution from the N2 ramp and the overseas fabs. Management’s Q&A remarks line up with this: C.C. Wei said he is “really jealous” of memory makers’ gross margins, but TSMC will not suddenly raise prices by 4x or 5x. The goal is to keep margins in a range that sustains long term expansion for both TSMC and its customers.
From the transcript (CFO Wendell Huang): “We have just guided our third quarter gross margin to decrease by 1.7 percentage point to 66% at the midpoint, primarily as we expect the steep ramp-up of our 2-nanometer technology to dilute our gross margin by about 3 to 4 percentage points.”
From the transcript (Chairman & CEO C.C. Wei, Q&A): “So we don’t suddenly increase our price by which I like to have 4x or 5x. […] we earn our value and we make sure that our profit, our gross margin is enough for our long-term sustaining expansion. […] So yes, I’m really jealous about memory company’s 86% gross margin.”
The bigger picture: this capex cycle looks longer than any before it
Management upgraded its language on the next three years of capex, from “significantly higher” than the past three years to “even more significantly higher.” The reasons: customers keep pushing for faster capacity expansion, and equipment makers are raising prices to pass through higher input costs.
From the transcript (CFO Wendell Huang, Q&A): “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.”
Put differently: once A14 (risk production in 2027, volume production in 2028, with transistor density roughly 20% above N2; A13 and the backside power A12 follow in 2029) enters its ramp over 2028 to 2030, capex should at minimum plateau at a high level. This upcycle could run longer than any previous one, putting fab construction and leading edge equipment suppliers on an unprecedented long runway.
Construction is already accelerating. Arizona Fab21 P3, Hsinchu Fab20 P3, and Kaohsiung Fab22 P4 have all been pulled forward to break ground in the second half of 2026. Capacity reshuffling is speeding up as well: existing N5 lines are gradually converting to N3, part of Fab14’s 12 inch mature capacity is being repurposed for silicon interposers to support advanced packaging, and mature nodes are gradually exiting the general purpose logic market, with the unserved demand spilling over to UMC and Vanguard (VIS).
ASML: Beat and Raise, Plus One Number That Disappeared
ASML’s July 15 call was a textbook beat and raise: Q2 revenue of €9.33 billion and gross margin of 54.0%, both ahead of guidance, with net income of €2.92 billion. EUV system sales reached €3.8 billion, including one High NA system (ASML press release). Q3 guidance jumps straight to €11 to €12 billion. Full year 2026 revenue guidance was raised sharply, from €36 to €40 billion previously to €43 to €45 billion, and full year gross margin guidance from 51% to 53% up to 54% to 56%. By segment: EUV sales are expected to grow more than 45% this year (roughly 65 Low NA systems shipped), memory related system sales more than 75%, and advanced logic more than 25% (official transcript).
From the transcript (CFO Roger Dassen): “We now expect to ship around 65 Low NA EUV systems this year, resulting in year-over-year EUV net system sales growth of over 45 percent.”
From the transcript (CEO Christophe Fouquet): “As a result, we anticipate our Memory-related net system sales to grow by over 75 percent this year.”“We now expect advanced Logic foundry-related net system sales to grow over 25 percent this year.”
Insightology View:
One number never showed up on this call: net bookings. ASML has replaced its quarterly order disclosure with visibility language. The market loses a high frequency timing signal, but what it gets instead is actually longer visibility: 2027 is close to fully booked, which locks in growth a year and a half ahead.
Look closely: the order intake figure ASML used to publish every quarter appears nowhere in this quarter’s press release or transcript. The last disclosed number was €13.2 billion in Q4 2025. In its place, qualitative language: Low NA EUV orders for 2027 are “close to fully covered,” a “significant number” of Low NA orders are already in hand for 2028, and the backlog keeps growing. Pair that with the capacity plan: Low NA EUV capacity up around 30% in 2027 from this year’s base of roughly 65 systems, DUV immersion up 30% from roughly 130, and a further 30% increase for each under evaluation for 2028.
From the transcript (CFO Roger Dassen): “For 2027, we are now close to being fully covered with orders for Low NA EUV and we are planning to increase our low NA EUV capacity by around 30 percent.”“Looking ahead to 2028, we have already received a significant number of Low NA EUV orders. Strong demand forecasts from our customers have led us to investigate a further 30 percent capacity increase for that year.”“Similarly, for our immersion systems, we intend to increase capacity by 30 percent in 2027 and are investigating a potential further 30 percent expansion for 2028.”“As a result, our backlog continues to increase with a broad mix of customers.”
One detail on pricing power worth flagging: our read is that ASML failed to push a price increase through to TSMC and only raised prices 5% to 10% on smaller customers. Even the most upstream monopolist in the industry is still a price taker when facing its largest customer.
The WFE upcycle keeps extending
The five major WFE buyers (TSMC, Samsung Electronics, SK Hynix, Micron, and Intel) account for the bulk of equipment purchasing, and all five have now confirmed capex upgrade cycles for 2026 through 2028, opening the door to consecutive upward revisions in 2027 and 2028.
Take TSMC as an example. Based on our channel checks, we expect TSMC’s WFE purchasing budget to climb from roughly 70% to 75% of capex over 2026 to 2028. Add to that TSMC’s own capex guidance moving up again, from the top of the prior $52 to $56 billion range to $60 to $64 billion, and the case that this WFE upcycle runs longer than any previous one keeps getting stronger.
Putting the Two Calls Together: Six Things We’re Watching
Late July IDM and memory earnings calls. The next checkpoint. TSMC says AI demand is running stronger than it expected at the start of the year; ASML says memory system sales are growing more than 75%. The Intel and memory maker calls starting in late July will mark both claims to market.
From the transcript (C.C. Wei, asked whether the five year AI CAGR guidance from January had changed): “let me give you not a number, but it’s stronger and stronger and stronger. So we don’t give you the number today because it continues to increase.”
TSMC’s 3Q gross margin landing, and the currency. Is the 65% to 67% guide another conservative lowball? And if the Taiwan dollar runs stronger than the 32 assumption, it eats further into margins.
Intel 18A’s real yield and customer list. We wait for Intel’s call and customer side evidence. This is one variable in the TSMC pricing power narrative, though we think the actual impact on TSMC’s pricing power is limited.
Price hikes landing. TSMC is negotiating a broad 10% to 15% foundry price increase for 2027, while management’s public language stops at regular annual price adjustments. When the negotiation shows up in official guidance will determine whether 2027 gross margin holds its ground.
ASML’s new visibility metrics. With bookings gone, we track two things instead: whether the “fully covered” language extends into 2028, and whether the 30% capacity plans get raised again.
The advanced packaging bottleneck. Management confirmed the CoPoS pilot line is built and needs about a year to mature before capacity buildout begins. We expect volume production in the second half of 2028 at the earliest, with initial capacity of 5,000 to 10,000 wafers per month, aimed at large form factor packages of 14x reticle size and above; the technical path (glass carrier versus square silicon substrate) is not yet settled. The glass core substrate supply chain is taking shape: Innolux on front end glass metallization, Ibiden and Unimicron on back end ABF buildup, with volume production expected around 2028 to 2029. Packaging remains the metronome for AI chip shipments, and the source of the “front end beats, back end shortages” risk.