TSMC beats expectations: strong demand for AI chips and 39% revenue growth

Taiwan Semiconductor Manufacturing Company (TSMC), a major supplier of chips to Nvidia and Apple, reported an unexpected 39% increase in quarterly sales. The result allayed fears that the investment frenzy around artificial intelligence (AI) hardware could be slowing down. With total third-quarter sales of 759.7 billion Taiwan dollars (US$23.6 billion), TSMC beat analysts' estimates of 748 billion.

TSMC $TSM, the world's leading manufacturer of advanced chips and a key player in AI, is experiencing growth that exceeds market expectations. Its recent results show that demand for high-performance chips, especially those needed to train AI models, remains strong. This growth is partly driven by the race among global tech giants such as Meta, Google and Microsoft to build a robust AI development infrastructure.

TSMC is a key chip supplier to companies such as Nvidia, which makes high-end AI processors, and Apple, which sources chips from TSMC for its iPhones. Although there are concerns that demand for new iPhone models could slow, continued interest in AI hardware is expected to more than offset these shortfalls. This trend is confirmed by recent statements from Hon Hai Precision Industry, a key server assembly partner of Nvidia, which plans to increase its production capacity in response to the "crazy" demand for next-generation chips.

Despite geopolitical tensions between the US and China, the AI investment boom in both countries remains strong. TSMC estimates that AI chips will continue to make up a large portion of its revenue, with more than half of the company's revenue now coming from high-performance computing hardware. TSMC dominates this sector, with its competitors such as Intel and Samsung lagging behind in advanced chip technology.

Despite delays in shipments of Nvidia's latest Blackwell chips, analysts agree that long-term demand for AI hardware will remain high. This delay is seen as more of a short-term issue that will not threaten TSMC's market dominance.

TSMC has seen rapid growth over the past two years, the tipping point of which came with the launch of ChatGPT, which sparked a race to procure hardware for AI data centers. This situation has not only led to a boost in the company's revenue but also to a rise in its stock value. TSMC shares more than doubled during this period, with the company briefly surpassing a market capitalization of one trillion dollars in July. Although there has been speculation about AI growth slowing, TSMC remains optimistic and expects demand for its products to continue.

At the same time, TSMC is gearing up for other development milestones, including the accelerated launch of chip production on a 2-nanometer process and the expansion of advanced chip packaging capabilities, which is expected to boost their market dominance by 2025.

Results

Revenues in the July-September period this year were T$759.69 billion (US$23.62 billion), compared with the LSEG SmartEstimate of T$750.36 billion (US$23.33 billion) from 23 analysts, according to Reuters calculations.

This represents a year-on-year increase of 36.5% compared to US$17.3 billion in the previous year. This is not a direct comparison as TSMC only provides monthly revenue data in Taiwan dollars, but it does provide quarterly revenue data and its outlook for quarterly earnings results in US dollars.

On its last earnings call in July, TSMC forecast third-quarter revenue in the range of US$22.4 billion to US$23.2 billion. For September alone, TSMC reported that sales jumped 39.6% year-on-year to T$251.87 billion.

The company did not provide details in its earnings brief. TSMC will report full third-quarter results on Oct. 17, when it will also update its outlook.

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Source: Investing.com