TSMC raises revenue outlook in sign of confidence in AI boom

(Bloomberg) — Taiwan Semiconductor Manufacturing Co. raised its 2024 sales growth target after quarterly results beat estimates, easing concerns about global chip demand and the sustainability of an AI hardware boom.

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The main chip maker of Nvidia Corp. and Apple Inc. now expects sales to rise 30% this year, a sharp increase from previous forecasts that called for a maximum increase in the mid-20%. This came after TSMC reported better-than-expected earnings for the September quarter. Capital spending of just over $30 billion is planned for 2024 – which is in line with previous expectations.

TSMC's upgraded outlook should help allay fears that investors have misjudged AI demand. Its shares have risen more than 70% this year, outperforming many of Asia's biggest technology companies, driven by strong sales of Nvidia Corp.'s chips. which are crucial for the development of artificial intelligence.

Taiwan's largest company raised its 2024 revenue forecast just a few months ago in July, lowering expectations for AI infrastructure spending from companies like Microsoft Corp. and Amazon.com Inc. underlined. The steady adoption of artificial intelligence is also expected to help boost sales of iPhones and other gadgets in the long run.

For a live blog of TSMC's earnings, click here.

Investors had been watching for divergences in the outlook after major supplier ASML Holding NV reported only half of analysts' estimated orders. The chipmaking equipment maker blamed slower-than-expected recovery in the automotive, mobile and PC markets, impacting chip factory expansion plans. But AI remains a bright spot, executives said.

On Thursday, TSMC reported a better-than-expected 54% rise in September quarter earnings.

While official trading in the company's American Depositary Receipts won't begin for several hours, ADRs rose about 4.5% on Robinhood's overnight trading platform. TSMC is popular with US retail investors who want to bet on the AI ​​theme. Shares of Japanese chip equipment makers, including Lasertec Corp., also pared losses in Tokyo, according to a report from TSMC.

What Bloomberg Intelligence says

TSMC's short- to medium-term revenue outlook remains solid, despite the potential slowdown in global manufacturing capacity growth signaled by ASML – its largest tool supplier – reporting Q3 revenue half of expected. The strong demand for TSMC's 2 and 3 nanometer technologies from Nvidia, AMD, Apple and Qualcomm provides compensation. TSMC's superior production yields, improving EUV machine productivity and leadership in 2.5D and 3D packaging provide further sales support.

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– Charles Shum, analyst

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The world's largest maker of advanced chips is one of the biggest beneficiaries of the global race to develop artificial intelligence. Its shares have more than doubled since that boom began in late 2022 with the launch of OpenAI's ChatGPT. TSMC's market capitalization briefly exceeded $1 trillion in the United States.

But even before ASML, some investors had become cautious about the sustainability of global AI spending. They wonder whether big tech companies like Meta Platforms Inc. and Alphabet Inc. will continue investing in AI chips and data centers without a truly mind-blowing AI application.

The risks of data center overcapacity and geopolitical issues have unsettled some investors. Bloomberg reported this week that Biden administration officials have discussed limiting sales of advanced AI chips from Nvidia and other American companies on a country-by-country basis.

Currently, TSMC seems to be aiming for rapid international expansion.

The company is planning additional plants in Europe with a focus on the artificial intelligence chip market, according to a senior Taiwanese official. In addition, there is ongoing construction work in Japan, Arizona and Germany.

– With support from Vlad Savov, Cindy Wang and Mayumi Negishi.

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