Taiwan Semiconductor Manufacturing Co. is experiencing a surge in demand for advanced chips due to the growth in AI development. This positive outlook comes after the company reported its first profit increase in a year, with strong AI demand fueling growth at the world’s largest contract chipmaker. TSMC anticipates revenue of $19.6 billion to $20.4 billion for the June quarter, surpassing estimates, and expects revenue growth of at least 20% for the year.
Last week, Taiwan’s largest company saw its fastest sales growth since 2022, indicating that demand for chips that accelerate AI development is starting to offset the impact of a decline in the smartphone market. Apple, which contributed around a quarter of TSMC’s revenue in 2023, experienced a significant drop in Chinese iPhone sales at the beginning of the year. However, TSMC is not relying solely on Apple as a major supplier and has diversified its customer base over time.
TSMC’s market value has surged by $340 billion since October 2022, fueled by expectations that it will emerge as a key beneficiary of the global AI development boom. The company earmarked a capital expenditure budget of $28 billion to $32 billion for 2024 and reported a 9% increase in net income to NT$225.5 billion ($7 billion) for the March quarter. Despite predicting revenue growth of at least 20% for the year, TSMC acknowledges the uncertainty due to global economic volatility and geopolitical tensions in the region, particularly between China and Taiwan.
Investors are betting on AI-focused chips becoming a larger portion of TSMC’s revenue in the long term as demand continues to grow at an annual rate of 50%. While some investors caution that current levels of AI chip demand may not be sustainable, others are keeping a close eye on geopolitical tensions in the region and how they may affect TSMC’s business operations in China and Taiwan.
In summary, TSMC’s positive outlook comes from increased demand for advanced chips driven by AI development and diversification efforts among suppliers such as Apple. While there are uncertainties due to global economic volatility and geopolitical tensions, investors remain optimistic about AI-focused chips becoming a larger portion of TSMC’s revenue long-term growth prospects remain strong despite these challenges.
