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The AI boom has a new leader, and it’s not who you might expect. While Nvidia has long been seen as the poster child of AI, Taiwan Semiconductor Manufacturing Company (TSMC) is now stealing the spotlight. TSMC, the world’s largest chipmaker, is at the center of the AI revolution, driving a rally in semiconductor stocks after its blockbuster third-quarter earnings report.
Third-Quarter Blowout Earnings
TSMC’s third-quarter performance impressed analysts:
- Net income: 325.3 billion New Taiwan dollars ($10.1 billion)
- Beat market estimates of NT$300.2 billion
- Represents a 54% year-over-year increase
- Revenue: $23.5 billion
- Up 36% year-over-year
- Gross margin: Rose to 57.8% from 54.3% last year
CFO Wendell Huang projects strong growth for Q4:
- Expected revenue: $26.1 billion to $26.9 billion
- This forecast represents:
- 13% sequential increase
- 35% year-over-year increase at the midpoint
The company’s gross margin also improved significantly. It rose to 57.8% from 54.3% in the same period last year. This margin expansion reflects TSMC’s efficient cost management. It also shows TSMC’s ability to capitalize on increasing demand for its cutting-edge technologies. These technologies are particularly important in AI and smartphone applications.
Chief Financial Officer Wendell Huang shared an optimistic outlook. He stated, “We expect fourth-quarter revenue to be between $26.1 billion and $26.9 billion.” This forecast represents a 13% sequential increase. It also marks a 35% year-over-year increase at the midpoint.
This forecast shows TSMC’s confidence in continued strong demand. It particularly highlighted the demand for its 3nm and 5nm technologies. These are critical for both smartphones and AI applications. We have discussed more about TSMC’s business in our blog.
TSMC Leads the AI-Driven Stock Rally
Investors were quick to react to TSMC’s stellar earnings report, which beat expectations and sparked optimism about the future of AI. Shares of TSMC listed in the U.S. surged by 9.8%, making it the most valuable company in Asia. This isn’t just any chipmaker—TSMC is the backbone of the AI hardware revolution, powering the technology that’s reshaping industries around the globe.
But it wasn’t just TSMC that saw gains. Nvidia (NVDA), long recognized as the face of AI chips and TSMC’s client, saw its stock rise by 4% to reach a new all-time intraday high. Other chipmakers, including Advanced Micro Devices (AMD) and Broadcom (AVGO), joined the rally, climbing over 1% each. The semiconductor sector, fueled by the explosive demand for AI chips, is thriving, with TSMC leading the way.
“It’s Just the Beginning” for AI Demand
During the company’s third-quarter earnings call, TSMC CEO C.C. Wei was clear about what’s driving their growth: AI. “It’s just the beginning” of the “insane” demand for AI chips, he said, sending a clear message to the market about the vast potential that still lies ahead. TSMC’s critical role in manufacturing the complex chips required for AI applications makes it a cornerstone of this revolution.
With TSMC producing custom chips for tech giants like Apple and Nvidia, Wei’s words struck a chord with investors. He emphasized that TSMC enjoys the “deepest and widest growth” in the AI chip market, with “almost every AI innovator” relying on TSMC to build their custom semiconductors. This positions TSMC as not just a participant in the AI boom but as a key player shaping the future of technology.
Addressing Industry Concerns
Investors had been on edge due to concerns about a slowdown in demand for semiconductors outside of AI applications. This fear was amplified earlier this week when ASML, which supplies chipmaking equipment to TSMC, warned of slower-than-expected recovery in automotive, mobile, and PC markets, which led to doubts about future chip plant expansion plans.
However, TSMC’s report reassured investors that demand for AI chips remains robust, and there is continued momentum in the semiconductor sector.
TSMC’s stock has surged 96% year-to-date and over 200% in the last two years. Its ability to meet the demands of giants like Apple and Nvidia has driven this growth, and the company shows no signs of slowing down. As AI continues to revolutionize industries, TSMC’s growth prospects remain bright.
AI Demand Fuels Growth and International Expansion
The soaring demand for AI has been a key driver of TSMC’s growth, and the company expects this trend to continue. CEO C.C. Wei reiterated during the earnings call that AI demand is “real” and is pushing TSMC to new heights. Many of the world’s largest companies, known as hyperscalers, are designing their own custom AI chips and turning to TSMC to produce them.
To meet the rising demand, TSMC has been expanding its production capacity globally. The company has committed $65 billion to building new facilities, including three chip plants currently under construction in Arizona. Earlier this year, TSMC also opened its first factory in Japan, signaling its intent to establish a more significant global presence.
Political Uncertainty and Regulatory Challenges
Despite its strong financials, TSMC is not immune to political challenges. A recent report from The Information revealed that the U.S. Commerce Department is investigating whether TSMC has been producing AI or smartphone chips for China’s Huawei, which has faced strict U.S. export controls. In response, TSMC has maintained that it complies with all relevant laws and will cooperate fully with authorities if needed.
The company issued a statement saying, “If we have any reason to believe there are potential issues, we will take prompt action to ensure compliance.” TSMC remains committed to abiding by export regulations and ensuring transparency with its customers.
The Future of TSMC and the Semiconductor Industry
Looking ahead, TSMC is in a strong position to continue riding the AI wave. The company’s impressive third-quarter earnings and positive outlook for the fourth quarter confirm its leadership in the semiconductor industry. With AI applications driving the need for increasingly advanced chips, TSMC’s role as the world’s largest contract chipmaker will be critical in shaping the future of AI.
As the AI boom continues to grow, TSMC is poised to remain at the forefront of this technological shift. The semiconductor industry, bolstered by AI-driven demand, is primed for further expansion. TSMC’s ability to manufacture cutting-edge chips will allow it to maintain its competitive edge and drive innovation in the years to come.
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