(Bloomberg) — Shares of Taiwan Semiconductor Manufacturing Co. hit a record high after the chipmaker beat quarterly estimates and raised its revenue growth target for 2024, easing concerns about global chip demand and sustainability of an AI hardware boom.
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The company – the main chipmaker for Nvidia Corp. and Apple Inc. – now expects its sales to rise about 30% in U.S. dollar terms this year, compared to a previous forecast of an increase of around 20%. This is after TSMC reported better-than-expected earnings for the September quarter. And it forecasts an increase in capital spending in 2025, up from about $30 billion this year.
TSMC’s American depositary receipts rose 9.8% in New York, reaching their highest level since the securities began trading in the United States in October 1997. Nvidia shares, meanwhile, rose increased by less than 1%. Shares of Japanese chip gear makers including Lasertec Corp. pared losses in Tokyo, while Infineon Technologies AG advanced in Europe alongside its industry peers.
TSMC’s outlook should help allay concerns that investors may have misjudged demand for AI and semiconductors. Those fears crystallized after chip industry stalwart ASML Holding NV stunned markets by announcing about half of the orders investors expected. On Thursday, CC Wei, CEO of TSMC, sought to dispel these doubts.
“The demand is real and I think this is just the beginning,” Wei said, echoing a number of executives including Nvidia’s CEO. In terms of overall chip demand, “everything has stabilized and is starting to improve.”
TSMC shares have surged more than 70% this year, outpacing many of Asia’s biggest tech companies, reflecting strong sales of Nvidia’s chips, key to the development of artificial intelligence.
Taiwan’s largest company had raised its 2024 revenue outlook just months ago in July, underscoring expectations for AI infrastructure spending from the likes of Microsoft Corp. and Amazon.com Inc. The steady adoption of artificial intelligence is also expected to help fuel iPhone sales. and other long-term gadgets.
Still, investors had been watching for gaps in TSMC’s outlook after ASML blamed slower-than-expected recovery in the auto, mobile and PC markets for stalled chip factory expansion plans . AI remains a bright spot, its executives said.
“TSMC is not just an AI machine,” said Ben Barringer, technology analyst at Quilter Cheviot. “They are much better placed than Intel and Samsung, who also have well-documented problems. TSMC has positioned itself well and if a real downturn were to hit the industry, it should be in a good position to weather it and come out of it in a good position.
The results show “there is no end in sight to AI-derived strength,” Wedbush analysts wrote in a note while raising their price target and reiterating their outperform rating.
What Bloomberg Intelligence says
TSMC’s fourth-quarter gross margin guidance of more than 57% (vs. 54.7% consensus) – coupled with the rapid ramp-up of N3 node revenue – indicates continued strong demand for its AI chips from Nvidia and others, as per our view. Sales growth of around 25% in 2025 appears achievable, based on our calculations, supported by TSMC’s leadership in 3 and 5nm nodes and its proprietary CoWoS advanced semiconductor packaging technology.
– Charles Shum, analyst
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On Thursday, TSMC reported a better-than-expected 54% rise in net profit for the September quarter to NT$325.3 billion ($10.1 billion). And it expects revenue of between $26.1 billion and $26.9 billion last quarter, beating the estimate of $24.9 billion.
The world’s largest maker of advanced chips has been one of the biggest beneficiaries of the global race to develop artificial intelligence. Its shares have more than doubled since this boom began in late 2022 with the launch of OpenAI’s ChatGPT. TSMC’s market capitalization briefly crossed the $1 trillion mark in the United States.
Yet even before ASML, some investors had become cautious about the trajectory of global AI spending. They question whether big tech companies like Meta Platforms Inc. and Alphabet Inc. will continue to invest in chips and data centers without a truly killer application.
All About Nvidia Chips, AI Hype, and What’s Next: QuickTake
Risks of data center overcapacity and geopolitical issues have unnerved some investors. Bloomberg reported this week that Biden administration officials discussed capping sales of advanced AI chips from Nvidia and other U.S. companies on a country-specific basis.
On Thursday, Wei said he expects AI server processor revenue to more than triple this year, which would represent a percentage of about 15% of total sales in 2024.
Longer term, TSMC continues rapid international expansion.
According to a senior Taiwanese official, the company is planning more factories in Europe, focusing on the artificial intelligence chip market. This is in addition to construction underway in Japan, Arizona and Germany.
–With help from Vlad Savov, Cindy Wang, Mayumi Negishi, Lianting Tu, Henry Ren and Subrat Patnaik.
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