Taiwan Semiconductor Manufacturing Company Limited (TSM), valued at $866.70 billion market cap, is a cornerstone of the global semiconductor industry and is increasingly pivotal to the rapidly evolving artificial intelligence (AI) ecosystem. As the world’s largest pure-play semiconductor foundry, TSMC’s role in AI innovation and development is profound and indispensable.
This article explores why TSMC is crucial to the AI ecosystem and why investors should closely monitor this semiconductor giant.
Vital Role of TSMC in the AI Revolution
TSM, headquartered in Hsinchu City, Taiwan, is the world’s leading semiconductor foundry. The company nurtures a dynamic ecosystem of global customers and partners by offering the industry’s leading process technologies and a portfolio of design enablement solutions, driving innovation across the global semiconductor sector.
The company’s commitment to research and development (R&D) is a key driver of its success. TSMC invests heavily in developing new process technologies and enhancing its manufacturing capabilities. The continuous innovation enables TSMC to meet the evolving needs of AI applications and maintain its competitive edge. For investors, TSMC’s focus on R&D represents a strong growth driver and a safeguard against technological obsolescence.
TSMC offers the most advanced and extensive range of dedicated foundry process technologies, including 2nm technologies, 3nm technology, 5nm technology, and 7nm technology, among others. This comprehensive portfolio supports several applications, from cutting-edge consumer electronics to high-performance computing and AI-driven innovations.
At its 2024 North America Technology Symposium in April, the chip giant introduced its latest semiconductor process, advanced packaging, and 3D IC technologies, showcasing its silicon leadership for the next wave of AI innovations. It debuted the TSMC A16™ technology, which features cutting-edge nanosheet transistors with an innovative backside power rail solution, set for production in 2026. The new technology promises significant enhancements in logic density and performance.
Meanwhile, expanding the reach of TSMC’s advanced technology to a broader range of applications, the company announced N4C, an extension of the N4P technology with up to an 8.5{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} reduction in die cost and minimal adoption effort, and is slated for volume production in 2025.
Additionally, TSMC introduced its System-on-Wafer (TSMC-SoW™) technology, a groundbreaking solution designed to deliver revolutionary performance to the wafer level in addressing the future AI needs of hyperscaler data centers. Also, the company is advancing its Compact Universal Photonic Engine (COUPE™) technology to support the rapid increase in data transmission demands driven by the AI boom.
Moreover, major tech companies, includingc, Advanced Micro Devices, Inc. (AMD), and Apple Inc. (AAPL), rely on TSMC for the production of their most advanced processors and GPUs.
Second-Quarter 2024 Revenue and Profit Beat Analyst Expectations
TSM’s revenue and earnings surpassed analyst estimates in the second quarter of 2024 as demand for advanced chips utilized in AI applications continues to rise. For the second quarter that ended June 30, 2024, the company’s net revenue increased 40.1{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} year-over-year to $20.82 billion. That beat analysts’ revenue estimate of $20.09 billion.
During the second quarter, the company’s shipments of 3-nanometer made up 15{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} of total wafer revenue, 5-nanometer accounted for 35{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38}, and 7-nanometer constituted 17{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38}. Advanced technologies, defined as 7-nanometer and more advanced technologies, accounted for 67{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} of total wafer revenue.
The company’s gross profit was $11.07 billion, up 37.6{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} from the previous year’s quarter. TSMC’s non-GAAP income from operations rose 41.9{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} year-over-year to $8.86 billion. Its net income and earnings per ADR came in at $7.66 billion and $1.48, increases of 36.3{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} year-over-year, respectively. Its earnings per ADR compared to the consensus estimate of $1.42.
As of June 30, 2024, TSMC’s cash and cash equivalents were $55.38 billion, and its total assets amounted to $184.13 billion.
“Our business in the second quarter was supported by strong demand for our industry-leading 3nm and 5nm technologies, partially offset by continued smartphone seasonality,” said Wendell Huang, Chief Financial Officer of TSMC. “Moving into third quarter 2024, we expect our business to be supported by strong smartphone and AI-related demand for our leading-edge process technologies.”
Furthermore, TSMC expects third-quarter revenue between $22.40 billion and $23.20 billion. That compares to $17.30 billion in revenue reported in the same period of 2024. The company’s gross profit margin is projected to be between 53.5{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} and 55.5{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38}, and its operating profit margin is expected to be between 42.5{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} and 44.5{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38}.
Bottom Line
TSMC remains a prominent player in the rapidly expanding AI ecosystem. As the world’s largest pure-play semiconductor foundry, TSMC’s leadership in advanced process technologies and commitment to continuous innovation ensure its pivotal role in powering next-generation AI applications.
The company’s comprehensive range of dedicated foundry process technologies, including industry-leading 2nm, 3nm, and 5nm technologies, alongside recent breakthroughs such as the TSMC A16™ and System-on-Wafer (TSMC-SoW™) technologies, underscores its strategic importance for shaping the future of AI.
The impressive financial performance in the second quarter of 2024, where revenue and EPS surpassed analyst expectations, highlights TSMC’s strong market position and resilience. As demand for advanced chips continues to surge, particularly in AI and high-performance computing, TSMC’s innovative solutions and robust financial health position it well for sustained growth and profitability.
Susquehanna analyst Mehdi Hosseini maintained Positive on TSM shares, with a price target of $250. Moreover, in July, Needham reaffirmed a Buy rating on shares of TSM with a price target of $210.
Amid this backdrop, investors could consider adding TSMC to their portfolio, particularly if they want to gain exposure to the burgeoning AI sector. However, it is also essential to remain mindful of potential risks, including geopolitical tensions and market fluctuations, which could impact the semiconductor industry.
