TSMC Raises Revenue Outlook in Show of Confidence in AI Boom

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

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The main chipmaker to Nvidia Corp. and Apple Inc. now expects sales to climb 30% this year, up sharply from previous projections for a maximum mid-20% rise. That’s after TSMC reported better-than-predicted earnings for the September quarter. It foresees capital expenditure of a little more than $30 billion in 2024 — in line with previous expectations.

TSMC’s raised outlook should help tamp down fears that investors mis-judged the AI demand. Its shares have surged more than 70% this year, outpacing many of Asia’s biggest tech firms in a reflection of strong sales of the Nvidia Corp. chips vital to artificial intelligence development.

Taiwan’s largest company had raised its outlook for 2024 revenue just a few months ago in July, underscoring expectations for spending on AI infrastructure from the likes of Microsoft Corp. and Amazon.com Inc. Steady adoption of artificial intelligence should also help fuel sales of iPhones and other gadgets in the long run.

For a liveblog on TSMC’s earnings, click here.

Investors had watched for deviations in outlook after major supplier ASML Holding NV reported only half the orders analysts estimated. The chipmaking gear maker blamed slower-than-expected recovery in the automotive, mobile and PC markets, impacting expansion plans for chip plants. But AI remains a bright spot, its executives said.

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

While official trading of the company’s American depositary receipts won’t begin for a few hours, the ADRs were up about 4.5% on Robinhood’s overnight trading platform. TSMC is popular among US retail investors seeking to bet on the AI theme. Shares of Japanese chip gear makers including Lasertec Corp. also pared losses in Tokyo after TSMC reported.

What Bloomberg Intelligence Says

TSMC’s short- to medium-term revenue outlook remains solid despite the potential slowdown in global fabrication-capacity growth implied by ASML — its largest tool supplier — reporting a 3Q book at half the expected level. Strong demand for TSMC’s 2- and 3-nanometer technologies from Nvidia, AMD, Apple and Qualcomm provide an offset. TSMC’s superior production yields, improving EUV machine productivity and leadership in 2.5D and 3D packaging offer further sales support.

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– Charles Shum, analyst

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The world’s largest maker of advanced chips has been one of the biggest beneficiaries of a global race to develop artificial intelligence. Its shares have more than doubled since that boom took off in late 2022 with the debut of OpenAI’s ChatGPT. TSMC’s market capitalization briefly crossed the $1 trillion mark in the US.

Yet even before ASML, some investors have grown cautious about the sustainability of global AI spending. They question whether big tech firms like Meta Platforms Inc. and Alphabet Inc. will continue to splash out on AI chips and data centers without a truly killer AI application.

The risks of data center over-capacity and geopolitical issues have unnerved some investors. Bloomberg reported this week that Biden administration officials have discussed capping sales of advanced AI chips from Nvidia and other American companies on a country-specific basis.

For now, TSMC appears to be pursuing a rapid international expansion.

It’s planning more plants in Europe with a focus on the market for artificial intelligence chips, according to a senior Taiwanese official. That’s on top of construction underway in Japan, Arizona and Germany.

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

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