TSMC soars 30%: AI chip craze fuels a profit leap in Q2

TSMC soars 30%: AI chip craze fuels a profit leap in Q2 is profiled by BTW Media because published evidence links it to internet infrastructure, governance, operational dependencies, or market visibility.

• Analysts expect TSMC’s profit to rise 30% year-on-year to $7.25 billion in the second quarter due to surging demand for AI chips.
• TSMC’s customers include Apple and NVIDIA and it is spending billions of dollars to build new factories overseas.

OUR TAKE
Strong demand for AI chips driven by the AI boom has pushed TSMC’s shares, Asia’s top company by market capitalisation, higher. With its advanced manufacturing technology and superior product quality, TSMC has successfully captured this market opportunity and demonstrated continued growth potential, playing a key role in Taiwan province’s export-dependent economy.
“Currently, there is a shortage of everything in the AI supply chain. Taiwan semiconductor stocks are not overvalued. Shares have risen a lot, but they are backed by earnings,” said Robert Cheng, an analyst at Bank of America in Taipei. Not coincidentally, Jian Shi Cortesi, portfolio manager at Gam Investment Management, agrees, “AI demand can continue for at least the next few quarters, as there is no sign of a slowdown in demand for AI chips.”
–Elodie Qian, BTW reporter

What happened

Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest contract chipmaker, is expected to post a net profit of NT$236.1 billion (US$7.25 billion) for the quarter ended 30 June according to forecasts from LSEG SmartEstimate (from 20 analysts). TSMC’s net profit for the second quarter of 2023 is NT$181.8 billion.

TSMC customers include Apple and NVIDIA, and the AI boom has pushed TSMC’s shares, as well as the entire China-Taiwan stock market, to record highs. TSMC’s U.S. stock market value topped $1 trillion last week. “I expect the third quarter outlook for all of their products to be very good,” said President Capital Management Co Chairman Li Fang-kuo.

TSMC will also update its current quarterly and full-year earnings outlook, including capital expenditures as it ramps up production expansion. TSMC is spending billions of dollars to build new factories overseas, including a $65 billion investment in three plants in the US state of Arizona, although the company says most of its manufacturing operations will stay in Taiwan.

“TSMC could raise their capital spending,” said KGI Securities Investment Advisory Co Chairman Chu Yen-min. “There are many positive factors which will help their stock price and support the broader market.”

Also read: TSMC Q2 profit soars 30% on AI demand

Also read: TSMC unveils A16 chip technology for faster AI chips

Why it’s important

The artificial intelligence boom has helped push up the shares of the company with the highest market capitalisation in Asia. So far this year, TSMC’s Taipei-listed shares have risen 75% to a record high, while the broader market is up 33%. TSMC plays a key role in Taiwan province’s export-dependent economy.

Wall Street analysts pointed out that the strong demand for advanced process chips driven by the artificial intelligence boom will boost TSMC’s bargaining power, and top Wall Street investment banks such as Citi, Goldman Sachs, and Macquarie raised their target share prices for TSMC as a result.

Macquarie Securities pointed out in its latest report that according to supply chain interviews, most of TSMC’s customers have agreed to raise foundry prices in exchange for reliable supply, which will drive TSMC’s gross margins to climb further. According to the analysts’ calculations, TSMC’s gross margin will climb to 55.1% in 2025; and close to 60% in 2026, reaching 59.3%.

Industry sources analysed that the price increase may be based on a combination of market demand, production capacity and costs. It is reported that Apple, Qualcomm, NVIDIA and AMD and other major manufacturers have booked TSMC 3nm family process capacity on a large scale, and customer queues are expected to continue until 2026.