CITIC SEC released a research report stating that Taiwan Semiconductor Manufacturing's (TSM.US) capital expenditure reached $40.9 billion in 2025. Looking ahead to 2026, the company has provided an aggressive capital expenditure (Capex) guidance, projecting it to rise to $52-56 billion. This figure significantly surpasses the previous market expectation of $45-48 billion. This unexpectedly high investment not only signals the early commencement of the mass production cycle for the 2nm process. According to SEMI, it is estimated that current domestic production capacity for 7nm and below accounts for less than 5% of the global share. However, based on SEMI data, semiconductor demand in mainland China currently constitutes about 35% of the global total, and it is expected to gradually fill this capacity gap in the future, creating a 5 to 6-fold expansion potential. The main views of CITIC SEC are as follows:
Taiwan Semiconductor Manufacturing achieved record-breaking performance growth in 2025, driven by AI and its 3nm process. Its 2026 capital expenditure guidance of $52-56 billion exceeded market expectations. TSMC announced its 2025 results on January 15th. In 2025, leveraging the strong surge in its High-Performance Computing (HPC) business (with its annual revenue contribution rising to 58%) amid the AI wave and the full-scale ramp-up of its 3nm process, the company achieved exceptional results: revenue of $122 billion (a significant year-on-year increase of 35.9%) and a gross margin nearing 60%. Benefiting from robust demand for AI computing power, revenue from advanced processes (7nm and below) accounted for 77% of the total, with the 3nm and 5nm processes collectively contributing 63% of wafer sales revenue. Net profit attributable to the parent company reached NT$1.72 trillion, increasing over 30% year-on-year and hitting a record high. The company's capital expenditure for 2025 reached $40.9 billion. Looking to 2026, TSMC provided an aggressive Capex guidance, expecting capital expenditure to rise to $52-56 billion, far exceeding the previous market expectation range of $45-48 billion. Within this, 70%-80% will be allocated to advanced processes, and 10%-20% will be used for advanced packaging, testing, and mask manufacturing. This above-expectation investment not only marks the early start of the 2nm process mass production cycle but also reflects the company's strategic resolve to accelerate expansion in areas like CoWoS advanced packaging to meet the increasingly tight demand for AI computing chips.
The unexpected growth in TSMC's Capex indirectly confirms that global demand for AI computing power remains in a strong upward phase, driving rapid growth in semiconductor equipment demand. According to EETIMES' forecast for the global semiconductor market from 2025 to 2035, global semiconductor sales are expected to increase from $68 billion in 2025 to $174.1 billion in 2035, representing a CAGR of 9.9%. Specifically, semiconductor demand from servers, data centers, and storage is projected to surge from $15.6 billion in 2025 to $82.6 billion in 2035, with a CAGR of 18.6%, significantly higher than the overall semiconductor average. From a capacity perspective, EETIMES expects global semiconductor manufacturing capacity to grow from 11.2 million wafers per month (wpm) in 2025 to 19 million wpm in 2035, a CAGR of 5.4%. Driven by AI demand, advanced logic capacity for 7nm and below is forecast to grow at a CAGR of approximately 15% from 2025 to 2035; DRAM capacity is expected to grow at a CAGR of about 7% during the same period. Rapid capacity expansion is fueling sustained growth in the global semiconductor equipment market. The market size exceeded $100 billion in 2024 (SEMI data), with a CAGR of 8.7% from 2018 to 2024. SEMI anticipates the global semiconductor equipment market will reach $121 billion in 2025 and is expected to continue growing to $139 billion in 2026, primarily driven by advanced process upgrades, emerging market demands (AI, autonomous driving, etc.), and rapid expansion of domestic capacity in various countries.
A dual-engine growth dynamic is forming domestically, characterized by "soaring AI computing power demand" and "domestic substitution in advanced processes." The capacity gap for advanced processes exceeds 1 million wafers per month. According to SEMI projections, global advanced logic process capacity for 7nm and below was approximately 850,000 wpm in 2024 and is expected to grow to 1.4 million wpm by 2028. TSMC and Samsung hold the vast majority of this share. Mainland China still lags behind the world's leading level in advanced logic. CITIC SEC estimates, based on SEMI data, that domestic capacity for 7nm and below currently accounts for less than 5% of the global share. However, SEMI data also indicates that semiconductor demand in mainland China constitutes about 35% of the global total. It is anticipated that this capacity gap will be gradually filled in the future, creating a 5 to 6-fold expansion potential. Based on TrendForce data, CITIC SEC estimates global memory chip capacity in 2025 to be 3.5-4 million wpm, with domestic capacity accounting for only about 10%. Given that China is the world's largest market for smartphones, PCs, and servers, consuming over 30% of global memory chips, the capacity gap in the memory sector remains substantial, with a self-sufficiency rate that is insufficient. The potential domestic expansion space represents 2 to 3 times the current capacity. Therefore, it is expected that future domestic expansion in advanced processes (both advanced memory and advanced logic) will continue, gradually filling a gap exceeding 1 million wafers per month in domestic capacity, corresponding to a equipment investment market worth hundreds of billions of US dollars.
The current domestic production rate for semiconductor equipment is only about 30%, with potential for more than doubling in the future. To mitigate supply chain risks, mainstream domestic fabs are actively building "non-US" equipment supply chains, providing a rapid growth window for domestic equipment manufacturers. Supported by local fabs, domestic equipment suppliers are gaining opportunities for production line validation and iteration. Progressing from mature segments like resist stripping and cleaning to core segments such as etching, thin-film deposition (PVD/CVD), and chemical mechanical polishing (CMP), domestic equipment is accelerating its transition from "usable" to "high-performing." It is continuously penetrating from mature processes into advanced memory and advanced logic production lines, leading to a steady increase in the domestic production rate. In terms of potential for localization, based on equipment procurement data disclosed on China Tender Net, the domestic equipment rate was approximately 18% in 2022. It is expected that by 2025, benefiting from the rapid increase in localization rates in DRAM and 3D NAND memory production lines, the domestic rate could rise to about 30%; it is anticipated to reach around 35% in 2026. Looking further ahead, the domestic rate is projected to gradually increase to 60%-70%, representing a doubling of the localization rate.
Investment recommendations: Driven by the dual forces of the AI wave and domestic substitution, sustained, large-scale investments are anticipated in mainland China to fill the advanced process capacity gap exceeding 1 million wafers per month. Furthermore, underpinned by the core logic of "domestic substitution," the demand for domestic equipment manufacturers has become more endogenous and sustained. Their growth potential is decoupled from the constraints of the global semiconductor cycle, demonstrating an ability to transcend cyclical fluctuations, and ushering in a golden development period of 5 to 10 years for domestic equipment manufacturers. It is recommended to focus on leading companies that have achieved technological breakthroughs in core equipment areas such as etching, thin-film deposition, cleaning, and CMP, have obtained validation from major clients, and possess platform-based layout capabilities. Attention should also be paid to equipment companies in areas like lithography, coat/develop, metrology/inspection, and testing, which have elasticity for increases in the domestic production rate.
Risk factors include risks associated with a global macroeconomic downturn; changes in the international political environment and escalating trade frictions; weaker-than-expected downstream demand; slower-than-expected AI innovation; slower-than-expected progress in domestic substitution; slower-than-expected expansion by domestic fabs; slower-than-expected development of advanced process technology; intensifying competition among downstream manufacturers; risks of raw material price increases due to inflation; risks of intensified sanctions; and significant exchange rate fluctuations.