TSMC Surpasses Expectations Due to High AI Demand
US Chip Stocks Rise in Premarket Trading
Following Taiwan Semiconductor Manufacturing's report of an 'insane' demand for AI, US chip stocks experienced a jump in premarket trading in New York. This news comes after ASML, a Dutch semiconductor equipment maker, reported disappointing earnings and sales forecasts, causing global chip stocks to plummet.
TSMC Reports Significant YoY Increase in Net Profit
The Taiwan-based chipmaker reported a 54% YoY increase in net profit in the third quarter, amounting to NT$325.3 billion ($10.2 billion). This surpassed the average Wall Street estimate of NT$299.3 billion. The significant profit increase is primarily attributed to the high demand for AI chips.
Third Quarter Snapshot
The third quarter saw a net income of NT$325.3 billion, a 54% YoY increase, and a gross margin of 57.8%. The operating profit was NT$360.77 billion, a 58% YoY increase, and the sales were NT$759.69 billion, a 39% YoY increase.
Strong Demand for Leading-Edge Process Technologies
Wendell Huang, Senior VP and Chief Financial Officer of TSMC, stated that the company's third-quarter business was bolstered by strong smartphone and AI-related demand for their industry-leading 3nm and 5nm technologies. He also expressed optimism for the fourth quarter of 2024, expecting continued support from strong demand for their leading-edge process technologies.
If the demand at TSMC, the world's largest contract chipmaker that supplies chips to Apple and Nvidia, continues through the end of the year, it could surpass Bloomberg consensus forecasts for the fourth quarter.
TSMC's Fourth Quarter Forecast
TSMC predicts sales between $26.1 billion and $26.9 billion, a gross margin between 57% and 59%, and an operating margin between 46.5% and 48.5%.
Comments on TSMC's Solid Earnings
Sean Johnstone from Goldman's noted TSMC's solid earnings, highlighting the company's positive outlook for AI and robust demand that is expected to last for many years. He also pointed out that overall chip demand outside of AI is stabilizing and starting to improve.
Despite TSMC's positive earnings and forecast, it contrasts with a downbeat earnings report from ASML, the world's largest chip equipment maker, earlier in the week. ASML downgraded its revenue guidance for 2025 due to a slower recovery in PC and mobile phone sectors, but noted that AI demand remains solid.
AI Demand is 'Insane'
C.C. Wei, TSMC chairman and CEO, told investors that one of their key customers described the current AI demand as 'insane'. He believes that this demand is real and is just the beginning, expecting it to continue for many years.
AI as the Driver to TSMC's Fundamentals and Valuations
Nomura Securities analyst Aarong Jeng told clients that AI continues to be the driving force behind TSMC's fundamentals and valuations. Simon Woo, Asia-Pacific technology research coordinator at BofA Securities, also noted that the mid-next year will be an important period as more companies are working with advanced AI with new logic and memory chips.
TSMC ADR Shares Jump
In the markets, TSMC ADR shares jumped more than 8% to a new record high above the $200 handle. Following the report, Nasdaq futures also jumped 80 bps.
Bottom Line
The impressive performance of TSMC, driven by the high demand for AI, has had a positive impact on the chip stock market. However, the question remains whether consumers will be excited with new AI-powered technologies in the future. What are your thoughts on this matter? Feel free to share this article with your friends and discuss it. Don't forget to sign up for the Daily Briefing, which is available every day at 6pm.
