Analysis of the Effectiveness of TSMC’s 7-8% R&D Expense Ratio Investment

Based on collected data and in-depth analysis, the following is a detailed report on

:

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TSMC has long maintained its R&D expenditure at

, with an actual R&D expense ratio of in 2024 and in 2023[0][1]. This investment level is leading in the semiconductor foundry industry:

Year	R&D Expenditure (USD 100 million)	R&D Expense Ratio (%)	Revenue (USD 100 million)
2019	31	8.9	346
2020	39	8.5	456
2021	45	7.8	573
2022	53	7.2	737
2023	60	8.4	716
2024	64	7.1	900

; R&D expenditure grew by over five years, while revenue grew by [1].

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TSMC’s R&D investment ensures its absolute leadership in advanced process technologies:

• Leading Process Nodes
  : TSMC is the world’s first foundry to mass-produce
  16nm, 10nm, 7nm, 5nm, and 3nm
  process nodes, and plans to mass-produce the
  2nm process
  in the fourth quarter of 2025[1][2]
• Increased Market Share
  : Its share of the wafer foundry market increased from
  52% in 2019 to 62% in 2024
  , and its market share of advanced processes (<7nm) reached
  85-90%
  [1][2]
• Abundant Patent Achievements
  : In 2023, it filed
  1,956 invention patent applications
  , a record high, representing a 28% year-on-year increase; cumulative patent authorizations exceed
  100,000
  [1][3]

There is a strong positive correlation between R&D investment and profit margins:

Profitability Indicator	Value	Industry Position
Gross Profit Margin	53-60%	Highest level in the global semiconductor industry
Net Profit Margin	38-44%	More than twice the average of the foundry industry
ROE	34.5%	Top level among global technology companies
P/E Valuation	28.44x	Market awards a technology premium

R&D-driven technological leadership has enabled TSMC to gain

and maintain profit margins significantly higher than the industry average[0][3].

R&D investment is not limited to process technology, but also includes advanced packaging:

• CoWoS Packaging
  : Has become the primary packaging solution for AI server chip manufacturers, with production capacity tripled in 2024
• 3DFabric Platform
  : Provides 3D wafer-level system integration solutions
• InFO Packaging
  : First applied to the iPhone A10 processor, widening the gap with Samsung[1][2]

Efficiency Indicator	Value
R&D Input-Output Ratio	Every $1 of R&D investment → $1.5 in revenue growth
5-Year CAGR of Revenue	21.0%
Percentage of R&D Personnel	48.1% (36,807 people)
Number of Manufacturable Technology Nodes	288 types

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TSMC’s R&D investment focuses on

[2][3]:

1. Advanced Logic Processes
   : Continuously advancing Moore’s Law, evolving from 3nm to 2nm, A16, and A14 nodes
2. Specialized Process Technologies
   : Covers areas such as RF, embedded flash memory, and power management
3. Advanced Packaging Technologies
   : 3D packaging solutions such as CoWoS, SoIC, and InFO

Launched in 2014, the “Nighthawk Project” organized a team of

, relying on 1.5-2 times the manpower and time to catch up on technological progress, successfully overcoming the 10nm node, and later evolving into a permanent system[1].

• Collaborates with leading global academic research institutions
• Invests in university-industry cooperation programs to cultivate talent
• Participates in industry alliances for early deployment of future technologies

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R&D-driven technological leadership has made TSMC the preferred foundry for over

, including top chip design companies such as Apple, NVIDIA, AMD, and Qualcomm[0][1]. The top 10 customers contribute , and the top 20 customers contribute .

With the surge in demand for AI and high-performance computing, TSMC has become a core global supplier of the “AI Engine”:

• Exclusive foundry for NVIDIA’s H100/A100 GPUs
• Exclusive supplier for Apple’s M-series chips
• Main production capacity for AMD’s MI300X AI accelerators[1][3]

Its technological leadership has brought a

, with a current P/E ratio of 28.44x and P/B ratio of 9.03x, both significantly higher than the industry average[0]. DCF valuation shows [0].

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TSMC’s investment at a 7-8% R&D expense ratio has yielded

:

1. Deeper Technological Moat
   : Leads competitors by 1-2 generations in advanced processes
2. Improved Profitability
   : Maintains the highest gross and net profit margins in the global wafer foundry industry
3. Expanded Market Share
   : Foundry market share continues to rise to 62%
4. Successful Positioning in the AI Era
   : Has become the “arms dealer” of global AI chip manufacturing

, with an R&D input-output ratio superior to the industry average. This positive cycle of “high R&D investment → technological leadership → pricing power → high profit margins” is the core driver behind TSMC’s ability to maintain its dominant position as the global leader in semiconductor foundry services.

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[0] Jinling API Market Data and Financial Analysis
[1] TSMC 2024 Business Overview and Annual Report (https://investor.tsmc.com/sites/ir/annual-report/2024/2024 Business Overview_0.pdf)
[2] TSMC 2024 Sustainability Report (https://esg.tsmc.com/zh-Hant/file/public/2024-TSMC-Sustainability-Report-c.pdf)
[3] Minsheng Securities: In-Depth Research Report on the Global AI Engine (https://pdf.dfcfw.com/pdf/H3_AP202501231642480162_1.pdf)
[4] 36Kr: Why TSMC Dominates the World? (https://m.36kr.com/p/2775079043613832)