Chip stocks have rallied with Nvidia hitting a record high on Thursday after industry bellwether Taiwan Semiconductor Manufacturing Co (TSMC)'s strong sales forecast bolstered investor confidence in the demand for processors used in artificial intelligence (AI) applications.
TSMC, the largest contract chipmaker globally, raised its annual revenue growth expectations. The company projected that sales from AI chips would contribute a mid-teen percentage to its full-year revenue.
"Nvidia is one of TSMC's major customers, so there is a direct read-across to the American chip firm in the Taiwanese company's results," AJ Bell investment analyst Dan Coatsworth said.
Chipmaker Intel (NASDAQ:INTC)'s shares also rose. The struggling company’s shares gained 1%, following expansion of its chip fabrication facilities in an attempt to challenge TSMC in advanced contract manufacturing.
"Fortunately, everything is fine in AI land," Coatsworth said. "TSMC said demand was strong for both AI-related business and from smartphones, implying that the chip sector still has momentum."
TSMC offers antidote
TSMC provided a welcome boost to investor confidence in the chipmaking sector.
A semiconductor stock sell-off triggered by a subdued forecast from Dutch equipment manufacturer ASML (AS:ASML), however, chipmakers rebounded on Thursday, supported by TSMC’s robust results.
TSMC's shares surged by as much as 13% in New York trading, while key players such as Nvidia, Broadcom (NASDAQ:AVGO), and Micron (NASDAQ:MU) each saw intraday gains of around 4%.
The iShares Semiconductor ETF also climbed as much as 3%, reflecting the broader market optimism.
In its third-quarter earnings report, TSMC raised its 2024 sales-growth forecast to 30%, up from previous estimates of mid-20% growth. Additionally, the company projected a threefold increase in AI-related revenue this year, which will account for 15% of its total revenue.
"The demand is real," CEO CC Wei said on the post-earnings conference call. "One of my key customers said, the demand right now is insane. It's just the beginning."
TSMC has surged over 100% year-to-date, trailing behind Nvidia’s 182% rise but significantly outperforming the iShares Semiconductor ETF’s 21% gain and the benchmark S&P 500’s 23% increase.
In the third quarter, TSMC's revenue in US dollar terms rose 36% year-on-year to US$23.5 billion, while net profit soared 54% to US$10.1 billion.
Looking ahead, TSMC expects fourth-quarter sales to range between US$26.1 billion and US$26.9 billion, bringing its full-year revenue growth close to 30% in US dollar terms. This is an increase from the company's earlier projection of slightly above mid-20% growth.
On Thursday, TSMC’s American depositary receipts rose 9.8%, reaching US$205.84.
TSMC continues to dominate the high-end chip manufacturing market, particularly for semiconductors used in artificial intelligence (AI) applications. It also produces core processors for Apple’s iPhones, Qualcomm (NASDAQ:QCOM)'s mobile chipsets and processors for Advanced Micro Devices (NASDAQ:AMD).
Doubling capacity
TSMC management confirmed plans to more than double its advanced chip-packaging capacity, known as Chip-on-Wafer-on-Substrate (CoWoS), by the end of 2024, citing that customer demand far exceeds supply.
CoWoS technology is critical for manufacturing Nvidia’s highest-performing artificial intelligence (AI) chips.
Wei highlighted the sustainability of AI demand, noting that it drives real productivity gains for both TSMC and its major customers. "We cannot be the only company benefiting from this AI application," Wei said.
When asked about Intel, Wei stated that TSMC has no interest in acquiring any of its competitor’s manufacturing facilities. He added that TSMC continues to secure "sizable business" from Intel, but it may take several quarters to determine if this revenue will grow.
Intel's latest Lunar Lake processors are designed by the American company but manufactured by TSMC.