TSMC Shares Jump Nearly 8% to New High, Fueled by AI Bets

BEIJING, February 15 (TMTPost)-- Taiwan-listed shares Taiwan Semiconductor Manufacturing Co. (TSMC) jumped as much as 9.8% on Thursday. Shares of the world’s biggest contract chipmaker settled 7.9% higher to NT$697.00, concluding the first session of the Lunar New Year 2024 with their highest ever close. Thursday’s rise brought gains to the date of the calendar year 2024 to 17.5%, driving the local benchmark Taiex to its record high with a daily gain of 3.0%.

Credit：Visual China

TSMC shares’ rally highlighted the euphoria around artificial intelligence (AI) as investors are betting on the Taiwan-based company’s key customers like Nvidia will be one of the big winnesr on strong AI demand. Nvidia is the semiconductor designer that dominates the market for AI chips, which empower AI systems including the large language model behind ChatGPT. Nvidia’s best-selling AI GPU H100 is made on TSMC’s 4-nanometer (nm) chip-making process. As one of the first customers that adopt TSMC’s 3nm process technology, Apple is set to deliver part of its flagship iPhone series empowered by the A17 bionic chip fabricated on 3nm process.

Prior to the Lunar New Year holiday trading break last week, TSMC on February 7 released robust growth of its sales at the start of the year, bringing hope for a long-awaited recovery of the semiconductor industry. The Taiwan-based company posted net revenue of NT$215.79 billion (US$6.9 billion) in January, representing a year-over-year (YoY) increase of 7.9% and a month-over-month (MoM) increase of 22.4%. The yearly sales growth is roughly in line with the guidance of the quarter ended March 2024. TSMC anticipated revenue that quarter to be between US$18.0 billion and US$18.8 billion, suggesting a YoY increase at least 8%.

TSMC benefited from rising demand from the AI industry and its competitive edge in 3-nm process technology (N3) used for high-performance computing, said Arisa Liu, a semiconductor research director at the Taiwan Institute of Economic Research. TSMC has given an expectation of a return to solid growth given the AI demand when it announced the quarterly financial results last month.

TSMC said its consolidated revenue of NT$625.53 billion for the fourth quarter of 2023 was essentially flat compared with a year ago, in U.S. dollars, the revenue decreased 1.5% YoY to US$19.62 billion. The net income that quarter dropped 19.3% to NT$238.71 billion. Gross margin for the quarter was 53.0%, down from 62.2% the same period in 2022 and 54.3% for the previous quarter. For the year 2023, revenue declined 8.7% in U.S. dollar terms to US$69 billion, or a decrease of 4.5% under Taiwan dollar term to NT$2.16 trillion. Gross margin decreased 5.2 points to 54.4%, mainly reflecting lower overall capacity utilization and 3nm ramp, partially offest by a more favorable foreign exchange rate.

“Our fourth quarter business was supported by the continued strong ramp of our industry-leading 3-nanometer technology,” said Wendell Huang, VP and Chief Financial Officer of TSMC. “Moving into first quarter 2024, we expect our business to be impacted by smartphone seasonality, partially offset by continued HPC-related demand.” HPC refers to High Performance Computing, the technology innovation on which enables broad AI and 5G applications, accelerating digital transformation and semiconductor growth.

Huang said TSMC spent US$30.4 billion, lower than its previous guidance of round US$32 billion as it continued to tighten up capital spending given the near-term uncertainties, while the capital budget is expected to be US$28 billion and US$32 billion, between 70% and 80% out of which will be will be allocated for the advanced process technologies, about 10% to 20% will be spent for specialty technologies.

At an earnings call following the quarterly results, TSMC CEO C.C. Wei pointed out almost all the world’s smartphone and HPC innovators are working with TSMC on 3-nm technologies. TSMC’s N3 successfully entered mass production and enjoyed a strong ramp in the second half of 2023, accounting for 6% of its total wafer revenue for the year, Wei said. He noted almost all the AI innovators are working with TSMC and the company is observing a much higher level of customer interest and engagement at its 2-nm process technology, or N2, compared with N3 at a similar stage from both HPC and smartphone applications. N2 is on course for mass production in 2025 with a ramp profile similar to N3, Wei said.

Entering 2024, TSMC forecasted fabless semiconductor inventory to return to a healthier level exiting 2023. However, macroeconomic weakness and geopolitical uncertainties persist, potentially further weighing on consumer sentiment and the market demand. Wei said business of his company has bottomed out on a year-over-year basis, and the company expected 2024 to be its healthy growth year, supported by continued strong ramp of its industry-leading 3-nm technologies, strong demand for the 5-nm technologies and robust AI-related demand. “Coming off the steep inventory correction and low base of 2023, for the full year of 2024, we forecast the overall semiconductor market excluding memory to increase by more than 10% year-over-year, while foundry industry growth is forecast to be approximately 20%,” Wei said at the earnings call.