(Bloomberg) -- Taiwan Semiconductor Manufacturing Co. lifted projections for 2024 revenue growth after quarterly results beat estimates, reflecting its confidence in the longevity of the global AI spending boom.
The chipmaker for Apple Inc. and Nvidia Corp. now expects sales to grow more than the maximum mid-20 per cent it had guided toward previously. For the current quarter, TSMC forecasts revenue of as much as US$23.2 billion, above analysts’ projections. And it narrowed its forecast for capital spending to the high end of its outlook to $30 billion to $32 billion, from as low as $28 billion previously.
The revisions underscore TSMC’s view that AI spending will remain elevated despite growing U.S.-Chinese trade tensions. In both countries, startups and tech firms from Microsoft Corp. to Baidu Inc. are splurging on AI infrastructure, largely powered by Nvidia accelerators. TSMC’s U.S.-listed shares rose more than 3.6 per cent in pre-market trading.
Market expectations had risen in the weeks leading up to TSMC’s report. The wider smartphone market — another big driver for Taiwan’s largest company — is on a path to recovery. Apple provided an upbeat guidance to suppliers on shipments of its upcoming iPhone 16, based on the potential strength of its new AI services. That helped TSMC report a better-than-anticipated 36 per cent rise in June-quarter profit.
“This time, AI demand is more real than two or three years ago,” TSMC Chief Executive Officer C.C. Wei said on an earnings call Thursday. The company is increasing capacity to find the right balance. “The supply continues to be very, very tight all the way into 2025.”
Net income rose to NT$247.8 billion (US$7.6 billion), after the company disclosed its second-quarter sales grew at the fastest pace since 2022. High-performance computing, led by AI, comprised 52 per cent of TSMC’s revenue, the first time that’s made up more than half of sales.
The world’s largest maker of advanced chips has been one of the beneficiaries of a global race to secure semiconductors to power artificial intelligence. Its shares have more than doubled since the AI boom took off in late 2022, following the debut of OpenAI’s ChatGPT, and hit a series of all-time highs as the firm’s market capitalization briefly crossed the $1 trillion mark.
“The demand is so high, I have to work very hard to meet my customers’ demand,” said Wei. TSMC tests customers’ chips, and it’s found the machine-learning that they enable useful in boosting its own productivity, although it too has to queue for scarce AI products, he said.
The company is likely to meet its gross margin target of 53 per cent or above, said Wei. “My customers are doing well so we should do well also,” he said.
What Bloomberg Intelligence says
ASML’s 23.7 per cent jump in order bookings in 2Q suggests TSMC’s N2 development is proceeding healthily, potentially accelerating capacity buildup. TSMC is scheduled to start mass production in 2H25, starting with an approximate 30,000-wafer monthly capacity in Hsinchu, Taiwan. Its N2 process will be priced at least 15 per cent higher than N3, we believe.
— Charles Shum, BI analyst
Investor euphoria over TSMC’s prospects has diminished since Bloomberg Businessweek published comments by U.S. Republican presidential nominee Donald Trump, who said he’s at best lukewarm about defending Taiwan in the event of Chinese aggression.
Separately, the Biden administration is considering invoking its most severe trade restrictions on some suppliers to Chinese chip firms, Bloomberg News reported triggering a global tech stock selloff as investors pondered the fallout for the world’s largest semiconductor arena.
Caution about AI is now emerging in corners of the market. This month, Goldman Sachs warned that the biggest U.S. tech firms may be spending too much on AI.
As earnings expansion slows for many of the worlds largest tech firms, investors will focus how companies such as utilities and data centers are deploying capital into AI, and whether those investments will translate to the bottom line and boost stock valuations.
“The AI trade is under increasing scrutiny,” Goldman Sachs strategists Ryan Hammond and David Kostin said in a note this week.
With assistance from Vlad Savov, Cindy Wang, Edwin Chan and Liau Y-Sing
©2024 Bloomberg L.P.