TSMC Capitalizes on AI Demand in Semiconductor Market
Artificial intelligence (AI) has significantly boosted semiconductor stocks over the past couple of years, exemplified by the remarkable 131% increase in the PHLX Semiconductor Sector index. This growth trend is expected to continue, as AI adoption expands from data centers to edge devices like smartphones, personal computers (PCs), and automotive applications.
Surging Demand for Semiconductor Chips
For example, the market for chips used in smartphones is projected to rise from $104 billion in 2023 to $146 billion next year. Similarly, PC semiconductor spend is forecasted to reach $107 billion in 2025, up from $89 billion last year. Automotive chip spending is also set to climb to $104 billion next year, increasing from $79 billion last year. Further, investment in semiconductors for AI servers and data centers is estimated to leap from $78 billion in 2023 to $136 billion next year.
For those looking to benefit from these rapidly expanding semiconductor markets, Taiwan Semiconductor Manufacturing (NYSE: TSM), commonly known as TSMC, presents an attractive opportunity.
Serving multiple sectors, TSMC’s latest developments illustrate its potential for continued growth driven by AI. Here are some key points to consider.
TSMC’s Promising Quarterly Performance
Recently, TSMC reported sales data for September, revealing a notable year-over-year increase of nearly 40%, achieving monthly revenue of 251.8 billion New Taiwan (NT) Dollars. Cumulatively, revenue for the third quarter appears poised to reach around 760 billion NT Dollars, marking a 39% increase from last year.
This figure exceeds analysts’ estimates of 748 billion NT Dollars for Q3. Consequently, TSMC is likely to surpass expectations with its third-quarter results scheduled for October 17. Analysts anticipate earnings of $1.80 per share, which reflects a 40% increase compared to the prior year, leading to potentially higher earnings based on the better-than-expected revenue growth.
Additionally, in the first nine months of 2024, TSMC’s revenue climbed by 32% year-over-year. This suggests that the company is on track to exceed the projected 26% growth to $87.2 billion that analysts expect for 2024. It is noteworthy that TSMC should maintain strong growth momentum in the upcoming years.
TSM Revenue Estimates for Current Fiscal Year data by YCharts
TSMC is positioned as a crucial partner in the booming AI industry, manufacturing chips for leading companies such as Nvidia, AMD, Qualcomm, Broadcom, and Marvell Technology.
Even companies with their own fabrication plants, like Intel, are utilizing TSMC’s advanced processes to create more efficient chips. TSMC’s collaboration with Apple also places it in prime position to benefit from the rising demand for AI-compatible smartphones.
Analyzing TSMC’s key clients shows the company’s strong foothold across various sectors. Nvidia, AMD, and Intel are taking advantage of opportunities in AI acceleration, with Nvidia leading the market by producing high-performance chips through TSMC’s technology.
Qualcomm, AMD, and Intel are targeting the AI-enabled PC segment, while Qualcomm and Apple present growth opportunities in the smartphone sector. Meanwhile, Marvell and Broadcom represent TSMC’s entry into the custom AI chip space. Regardless of who leads in market share, TSMC is expected to benefit.
Because of this, TSMC’s advanced packaging technology for AI chips is fully booked until 2025. Consequently, the company is expanding its production capacity for AI chips earlier than planned, as stated by Morgan Stanley. This move is anticipated to enhance production capabilities, fulfilling orders, and ultimately driving revenue growth.
Considering a Pre-Earnings Investment?
With TSMC’s momentum heading into its Q3 earnings report on October 17, there is a strong possibility of exceeding consensus expectations and offering optimistic Q4 guidance, potentially boosting the stock.
Having already gained 77% this year, TSMC appears ready to close the year on a high note. Currently trading at 22 times forward earnings, this AI stock seems poised for further gains, making it a compelling purchase at this juncture.
Should You Invest $1,000 in TSMC Now?
Before making a move on TSMC stock, keep this in mind:
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Nvidia, Qualcomm, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom, Intel, and Marvell Technology and also has disclosed options regarding Intel.
The views and opinions expressed herein are those of the author and do not necessarily represent those of Nasdaq, Inc.
