Taiwan Semiconductor Manufacturing Co. (TSMC), a leading semiconductor manufacturer and a key partner of tech giants such as Nvidia and Apple, released a portion of quarterly results that exceeded market expectations. The company posted a 39% year-over-year increase in revenue, reporting sales of Taiwan $759.7 billion ($23.6 billion) for the third quarter of 2024, beating analysts' average forecast of TWD 748 billion. This strong growth has calmed investor fears that spending on AI hardware is starting to stagnate.
A key player in the AI boom
TSMC is one of the major companies at the center of the global growth of investments in artificial intelligence (AI) development. The company produces advanced chips that are essential for training AI models. Since 2020, its revenue has more than doubled, largely thanks to breakthrough technologies like ChatGPT, which have sparked increased demand for hardware from Nvidia for AI server farms.
Despite the fact that some analysts are beginning to question the sustainability of this growth, TSMC has managed to convince investors of the continued demand for its products. The company's shares have more than doubled since the launch of ChatGPT, with the firm's market capitalization briefly surpassing the $1 trillion mark in July 2024.* The company also raised its revenue growth outlook in 2024 at the time, highlighting the expected continued demand for AI infrastructure despite rising trade tensions between the U.S. and China.
The future of AI and the benefits for TSMC
Although there have been concerns about the sustainability of demand for AI technologies, especially in the context of the infrastructure of companies such as Meta and Google, TSMC still believes in steady growth in AI spending. Companies in both the US and China, including Microsoft and Baidu, are racing to develop the most advanced AI applications. Based on this, this race is driving order growth for TSMC, especially in the area of high-performance computing hardware, which now accounts for more than half of the company's revenues.
Although some analysts assume that delays in the delivery of new chips from Nvidia (Blackwell series) may temporarily affect demand, most investors do not see this as a long-term problem for TSMC. With competitors like Intel and Samsung still vying for a place in the market, TSMC is likely to maintain its leadership in the custom chip manufacturing sector. In addition, recent statements from Hon Hai Precision Industry, Nvidia's main server assembly partner, confirm that demand for AI hardware remains strong.
Strong outlook for 2024 and beyond
TSMC continues to expect revenue and profit growth, mainly due to high orders from companies such as Nvidia and Intel, which should compensate for possible declines in demand for chips for the new iPhones. [1] An important part of TSMC's future plans is also the launch of mass production of chips with 2-nanometer technology (N2) and the expansion of advanced chip packaging (CoWoS) capacities in 2025.
Conclusion
TSMC is currently one of the most important players in the global development of AI technologies. With the constant increase in demand for advanced chips and continued investment in AI infrastructure, the company has a stable track record to maintain its growth momentum. For investors looking for a position in the artificial intelligence and advanced semiconductor technology sector, TSMC remains an attractive choice with high growth potential in the coming years.
* Past performance is not a guarantee of future results.
[1] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate, or on the current economic environment, which is subject to change. Such statements are not a guarantee of future performance. They involve risks and other uncertainties that are difficult to predict. Results could differ materially from those expressed or implied in any forward-looking statements.
