Finance
TSMC raises revenue outlook to reflect heated demand for AI
(Bloomberg) — Taiwan Semiconductor Manufacturing Co. has upgraded its 2024 revenue growth projections after quarterly results beat expectations. This reflects confidence in the longevity of the global AI spending boom.
Most read from Bloomberg
The chip maker for Apple Inc. and Nvidia Corp. now expects sales to grow more than the maximum mid-20% he had previously targeted. For the current quarter, TSMC forecasts revenue of as much as $23.2 billion, above analyst expectations. And it lowered its capital spending forecast to the high end of its outlook from $30 billion to $32 billion, down from $28 billion previously.
The revisions underscore TSMC’s view that AI spending will remain high despite rising trade tensions between the US and China. In both countries, startups and technology companies, from Microsoft Corp. to Baidu Inc., spending money on AI infrastructure, largely powered by Nvidia accelerators. US-listed shares of TSMC rose more than 3.6% in pre-market trading.
Market expectations had been rising in the weeks leading up to the TSMC report. The broader smartphone market – another key driver for Taiwan’s largest company – is on the road to recovery. Apple gave suppliers optimistic guidance on shipping the upcoming iPhone 16, based on the potential power of the new AI services. That helped TSMC report a better-than-expected 36% increase in June quarter earnings.
“This time, the demand for AI is more real than it was two or three years ago,” TSMC Chief Executive Officer CC Wei said during an earnings call on Thursday. The company is increasing its capacity to find the right balance. “Supply will remain very tight until 2025.”
Click here for a live blog about the figures.
Net profit rose to NT$247.8 billion ($7.6 billion) after the company announced second-quarter revenue grew at the fastest pace since 2022. High-performance computing, led by AI, accounted for 52% of revenue from TSMC, the first time this has been done, more than half of the turnover increased.
The world’s largest maker of advanced chips has been one of the beneficiaries of a global race to secure semiconductors for artificial intelligence. Shares have more than doubled since the AI boom took off in late 2022, following the debut of OpenAI’s ChatGPT, hitting a series of all-time highs as the company’s market cap briefly crossed the $1 trillion mark.
“The demand is so high that I have to work very hard to meet my customers’ demand,” said Wei. TSMC is testing customers’ chips and has found the machine learning they enable useful in boosting its own productivity, although the company too is lining up for scarce AI products, he said.
The company will likely achieve its gross margin target of 53% or more, Wei said. “My customers are doing well, so we have to do well too,” he said.
What Bloomberg Intelligence Says
ASML’s 23.7% increase in order bookings in the second quarter indicates that TSMC’s N2 development is progressing healthily, potentially accelerating capacity build. TSMC is expected to begin mass production in the second half of 2025, starting with a monthly capacity of approximately 30,000 wafers in Hsinchu, Taiwan. The N2 process will, in our opinion, be priced at least 15% higher than N3.
— Charles Shum, BI analyst
Investor euphoria over TSMC’s prospects has waned since Bloomberg Businessweek published comments from US Republican presidential candidate Donald Trump, who said he is lukewarm at best about defending Taiwan in the event of Chinese aggression.
In addition, the Biden administration is considering imposing its toughest trade restrictions on some suppliers to Chinese chip companies, Bloomberg News reported, triggering a global sell-off in technology stocks as investors pondered the impact on the world’s largest semiconductor arena.
There is now a sense of caution about AI in the corners of the market. This month, Goldman Sachs warned that the largest US tech companies may be spending too much on AI.
With earnings growth slowing for many of the world’s largest tech companies, investors will focus on how companies such as utilities and data centers are deploying capital into AI, and whether those investments will translate into the bottom line and boost stock valuations.
“AI trading is coming under increasing scrutiny,” Goldman Sachs strategists Ryan Hammond and David Kostin said in a note this week.
–With help from Vlad Savov, Cindy Wang, Edwin Chan and Liau Y-Sing.
(Updates with comments from executives and analysts from the fifth paragraph)
Most read from Bloomberg Businessweek
©2024 BloombergLP
