TSMC Beats Forecasts On ‘Insane’ AI Demand

Nasdaq 100 futures rose 80 bps as US chip stocks jumped in premarket trading in New York after Taiwan Semiconductor Manufacturing reported ‘insane’ AI demand. This comes days after Dutch semiconductor equipment maker ASML posted disappointing earnings and sales forecast that sent global chip stocks into a downward spiral.

The Taiwan-headquartered chipmaker reported a 54% YoY jump in net profit to NT$325.3 billion ($10.2 billion) in the third quarter, exceeding the average Wall Street estimate of NT$299.3 billion (tracked by Bloomberg). The sharp profit increase was primarily due to the ‘insane’ demand for AI chips.

Here’s a snapshot of the third quarter (courtesy of Bloomberg): 

Net income NT$325.3 billion, +54% y/y, estimate NT$299.3 billion

Gross margin 57.8% vs. 53.2% q/q, estimate 54.8%

Operating profit NT$360.77 billion, +58% y/y, estimate NT$330.82 billion

Operating margin 47.5% vs. 42.5% q/q, estimate 44.6%

Sales NT$759.69 billion, +39% y/y, estimate NT$751.06 billion

“Our business in the third quarter was supported by strong smartphone and AI-related demand for our industry-leading 3nm and 5nm technologies,” Wendell Huang, Senior VP and Chief Financial Officer of TSMC, wrote in a statement. 

Huang continued, “Moving into the fourth quarter of 2024, we expect our business to continue to be supported by strong demand for our leading-edge process technologies.”

If demand at the world’s largest contract chipmaker, which supplies chips to Apple and Nvidia, continues through the end of the year, TSMC could exceed Bloomberg consensus forecasts for the fourth quarter: 

TSMC’s fourth quarter forecast 

Sees sales $26.1 billion to $26.9 billion, estimate $24.94 billion (Bloomberg Consensus)

Sees gross margin 57% to 59%, estimate 54.7%

Sees operating margin 46.5% to 48.5%, estimate 44.3%

In a note on Thursday to clients, Goldman’s Sean Johnstone commented on TSMC’s solid earnings: 

TSMC – beat on Q3 and sees 4Q SALES OF $26.1B TO $26.9B, EST. $24.94B. Sees CAPEX for 2024 to be “slightly higher than $30b” due to strong AI demand. On capex for 2025 would not be drawn on a number but saying that ‘next year will be a healthy year’ as in higher than 2024. This is also the view of GIR which has recently increased its capex for ’25E to $40B vs previously $36B. So the positive is that TSMC continues to deliver, seems very positive on the outlook for AI (as expected). On AI – extremely robust” and believes demand is “real and just beginning” and expect to “last for many years.” Overall chip demand outside of AI is stabilizing and starting to improve. On 2nm remain positive so saying that they have seen interest in 2nm and are actually seeing more demand from 2nm than they had seen for N3. Demand is very high and TSMC is preparing both 2nm and A16 and they need to prepare capacity for N2.So net +ve for ASM. To be fair ASML yesterday they suggested that TSMC would be fine and that issue with pushout was not TSMC but Samsung, Intel and memory names.

TSMC’s solid earnings and forecast contend with a downbeat earnings report from major supplier ASML, the world’s largest chip equipment maker, earlier in the week. ASML downgraded its revenue guidance for 2025 on a slower PC and mobile phone recovery. However it noted that AI demand was still solid. 

C.C. Wei, TSMC chairman and CEO, told investors, “One of my key customers said the [AI] demand right now is insane,” adding, “The demand is real. I believe it’s just the beginning of this demand … and it will continue for many years.” 

On Thursday, Nomura Securities analyst Aarong Jeng told clients, “AI continues to be the driver to TSMC’s fundamentals and valuations.”

“Mid-next year will be an important period, as more companies are working with more advanced … AI with new logic and memory chips, plus more powerful large language models,” Simon Woo, Asia-Pacific technology research coordinator at BofA Securities, told clients. 

Woo noted, “But still, the uncertain factor is whether consumers will be excited with a new [AI-powered] smartphone, new PC, new TV, new consumer electronics.” 

In markets, TSMC ADR shares jumped more than 8% to a new record high above the $200 handle. 

Nasdaq futures jumped 80 bps following the report. 

Risk on returns.