TSMC Exceeds Expectations in Q2 as AI Chip Demand Grows

Taiwan Semiconductor Manufacturing Company (TSMC) has reported better-than-expected revenue and profit for the second quarter, benefiting from strong demand for advanced chips used in AI applications. The surge in demand has propelled TSMC's Taiwan-listed shares up by almost 70% this year. The company reported net revenue of NT$673.51 billion ($20.82 billion), surpassing the estimated NT$657.58 billion, while net income stood at NT$247.85 billion, higher than the estimated NT$238.8 billion. TSMC attributes the Q2 performance to robust demand for its leading-edge 3-nanometer and 5-nanometer technologies.

Despite the strong performance, Chairman and CEO C.C. Wei cautioned about supply challenges caused by the high demand for AI chips. TSMC faces stiff competition from rivals like Samsung and Intel as they aim to challenge its dominant position in chip production. However, TSMC counts major companies such as Apple and Nvidia among its clients, highlighting its significant presence in the industry.

Looking ahead, TSMC expects continued support from robust smartphone and AI-related demand in Q3. Wei anticipates 2024 to be a year of strong growth for TSMC. The company projects Q3 revenue of $22.4 billion to $23.2 billion, a notable increase compared to $17.3 billion in the same period last year. To maintain its competitiveness, TSMC plans to allocate a significant portion of its capital budget this year, narrowed down to $30 billion to $32 billion, towards advanced technologies.

However, TSMC faces supply constraints that might extend until at least 2025. Wei mentioned that efforts are underway to meet customer demand by expanding capacity but highlighted that the supply will remain tight. The company is focused on the development of 2-nanometer technology, which is progressing well and is set for volume production in 2025.

The robust demand for advanced AI chips has driven TSMC's stock to new heights, with Taiwan-listed shares experiencing a nearly 70% increase this year. Analysts expect the capacity of TSMC's 3-nanometer process to more than double in 2024 compared to the previous year. They also anticipate TSMC raising its 2024 revenue growth outlook on the upcoming earnings call.

Counterpoint Research data reveals that TSMC's global foundry market share reached 62% in Q1, up from 59% in the same period last year. The firm's recent financial results demonstrate its strong positioning in the market, bolstered by the fast-evolving demand for AI chips.