When Taiwan Semiconductor Manufacturing Company (TSM) reports earnings on January 15, the headline numbers probably won't tell the whole story. Sure, analysts want to see if fourth-quarter results hit the guided range of $32.20 billion to $33.40 billion in revenue and $2.76 per share in earnings. But the real question is what management says about 2026, especially gross margins, as the world's most important chipmaker navigates tightening supply dynamics, surging AI demand, and a massive geographic expansion that's raising eyebrows back home in Taiwan.
The Mature Chip Market Is Getting Expensive
Here's something that doesn't grab headlines but matters: the boring old chips made on 8-inch wafers are getting pricier. TrendForce reports that chipmakers are preparing price increases of 5% to 20% for these wafers in 2026. Why? Because Taiwan Semiconductor and Samsung Electronics (SSNLF) are gradually shutting down their less-advanced 8-inch capacity, and nobody's rushing to build replacements.
The math works in favor of higher prices. Global 8-inch capacity is expected to shrink 2.4% in 2026 and another 0.5% in 2027, according to TrendForce data cited by the Taipei Times. Meanwhile, utilization rates are climbing from last year's 75-80% range up to 85-90% this year, driven by demand for AI-server power chips and front-loaded consumer orders. Less supply, more demand, higher prices. Economics 101, but it matters for Taiwan Semiconductor's pricing power in mature nodes even as all the attention focuses on cutting-edge AI chips.
Arizona Is About To Get A Lot Bigger
Now for the geopolitically interesting part. Taiwan Semiconductor is preparing a significant expansion of its Arizona operations, potentially adding at least five more fabrication plants beyond its current $165 billion commitment. This isn't just about building chips closer to American customers. It's part of ongoing trade negotiations where Washington is essentially saying: build more here, and we'll lower tariffs on Taiwanese goods.
The company has already opened its first Arizona fab and continues construction on additional facilities. The longer-term plans could bring the total U.S. footprint close to a dozen facilities, producing advanced logic chips and packaging components to supply customers like Nvidia (NVDA) more directly. Given that U.S. customers now represent more than 75% of Taiwan Semiconductor's revenue, the logic makes business sense.
But economist Liu Pei-chen, quoted by the Taipei Times, raised a fascinating concern: this could push Taiwan Semiconductor toward a dual-hub model, with U.S. capacity potentially meeting local demand for high-performance computing and AI chips. That's a strategic risk for Taiwan itself, where many view the company as a "silicon shield" because countries like the United States rely so heavily on its advanced chips. If those chips get manufactured and packaged entirely in Arizona instead of Taiwan, Washington's incentive to defend Taiwan against potential Chinese aggression could diminish. It's the kind of geopolitical calculus that makes chip manufacturing more than just a business story.
Liu also warned about profitability pressures from higher U.S. construction costs and the geopolitical risks of concentrating more advanced production stateside. Which brings us back to why the 2026 margin guidance matters so much.