(Bloomberg) -- Taiwan Semiconductor Manufacturing Co. raised its target for 2024 revenue growth after quarterly results beat estimates, allaying concerns about global chip demand and the sustainability of an AI hardware boom.
The main chipmaker to Nvidia Corp. and Apple Inc. now expects sales to climb roughly 30% in US dollar terms this year, up from previous projections for about a mid-20% rise. That’s after TSMC reported better-than-predicted earnings for the September quarter. And it foresees capital expenditure rising in 2025 from roughly $30 billion this year.
TSMC’s American depositary receipts rose as much as 10% after trading opened in New York, reaching their highest level since the securities began trading in the US in October 1997. Nvidia’s stock gained as much as 3.2%, and is on track to hit a record close if the gains hold. Shares of Japanese chip gear makers including Lasertec Corp. pared losses in Tokyo, while Infineon Technologies AG rose in Europe alongside sector peers.
TSMC’s outlook should help tamp down concerns that investors misjudged AI and semiconductor demand. Those fears crystallized after chip industry linchpin ASML Holding NV stunned markets by reporting about half the orders investors had expected. On Thursday, TSMC Chief Executive Officer C. C. Wei sought to dispel those doubts.
“The demand is real and I believe it’s just the beginning,” Wei said, echoing a number of executives including Nvidia’s CEO. In terms of overall chip demand, “everything’s stabilized and start to improve.”
TSMC’s shares have surged more than 70% this year, outpacing many of Asia’s biggest tech firms in a reflection of strong sales of the Nvidia chips vital to artificial intelligence development.
Taiwan’s largest company had raised its outlook for 2024 revenue just a few months ago in July, underscoring expectations for spending on AI infrastructure from the likes of Microsoft Corp. and Amazon.com Inc. Steady adoption of artificial intelligence should also help fuel sales of iPhones and other gadgets in the long run.
Still, investors had watched for deviations in TSMC’s outlook after ASML blamed slower-than-expected recovery in the automotive, mobile and PC markets for stalling chip plant 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 positioned than both Intel and Samsung, which have had their own well-documented issues. TSMC has positioned itself well and should any real downturn hit the sector, it should be in a strong position to weather this and emerge in a good place.”
The results show “no end in sight to AI-derived strength,” Wedbush analysts wrote in a note while raising their price target and reiterating their rating of outperform.
What Bloomberg Intelligence Says
TSMC’s 57%-plus gross-margin guidance for 4Q (vs. consensus’ 54.7%) — coupled with the fast ramp-up of N3-node revenue — indicates still-strong demand for its AI chips from Nvidia and others, consistent with our view. Sales growth of about 25% in 2025 looks feasible, based on our calculations, supported by TSMC’s leadership in 3- and 5-nm nodes, and its advanced CoWoS proprietary semiconductor packaging technology.
- Charles Shum, analyst
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On Thursday, TSMC reported a better-than-projected 54% rise in September-quarter net profit to NT$325.3 billion ($10.1 billion). And it expects revenue of $26.1 billion to $26.9 billion in the final quarter, beating an estimate for $24.9 billion.
The world’s largest maker of advanced chips has been one of the biggest beneficiaries of a global race to develop artificial intelligence. Its shares have more than doubled since that boom took off in late 2022 with the debut of OpenAI’s ChatGPT. TSMC’s market capitalization briefly crossed the $1 trillion mark in the US.
Yet even before ASML, some investors have grown cautious about the trajectory of global AI spending. They question whether big tech firms like Meta Platforms Inc. and Alphabet Inc. will continue to splash out on chips and data centers without a truly killer application.
All About Nvidia Chips, AI Hype and What Lies Ahead: QuickTake
The risks of data center over-capacity and geopolitical issues have unnerved some investors. Bloomberg reported this week that Biden administration officials have discussed capping sales of advanced AI chips from Nvidia and other American companies on a country-specific basis.
On Thursday, Wei said he expects revenue from AI server processors to more than triple this year, yielding a mid-teens percentage of total sales in 2024.
Longer-term, TSMC is pursuing a rapid international expansion.
It’s planning more plants in Europe with a focus on the market for artificial intelligence chips, according to a senior Taiwanese official. That’s on top of construction underway in Japan, Arizona and Germany.
--With assistance from Vlad Savov, Cindy Wang, Mayumi Negishi, Lianting Tu, Henry Ren and Subrat Patnaik.
(Updates with TSMC and Nvidia share prices in the third paragraph and Wedbush commentary in the 10th paragraph.)