They raised revenue guidance to 30% and cut gross margin guidance by 200bps in the same breath.
Thesis: The 'Capacity Ceiling' is the trade. TSMC isn't losing pricing power; they are physically unable to ship enough wafers to offset the temporary FX and Arizona startup costs. When you own the bottleneck for a trillion-dollar capex cycle, margin compression from expansion is a feature, not a bug. The backlog is real. The N2 yield ramp is better than N3. Long the monopoly.
Verdict: LONG — Conviction: HIGH
Catalyst: N2 revenue contribution in H1 2026 exceeding N3 ramp profile due to higher ASPs.
Key Risk: Overseas fab dilution widens from 2-3% to 3-4% as Arizona scales, permanently capping GM below 55%.
The Tell: C.C. Wei's forced correction on CoWoS: 'The last time you guys misunderstood what I said is -- sorry it's bad worded. So I will say we try to narrow the gap.' He admitted they can't solve the shortage.
Friction Level: MODERATE_FRICTION — Can pricing power offset the structural cost inflation of overseas fabs? Bulls say yes via 'sharing value'; Bears say the cost structure is permanently impaired.
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