The chip industry ushered in a “strong needle”! Strong AI demand boosts TSM.US Q3 profit by 54%

The Zhitong Finance App learned that TSM.US's profit surged 54% in the third quarter due to strong sales of Nvidia (NVDA.US) artificial intelligence chips offsetting the slump in the mobile chip sector.

The main chipmaker Nvidia and Apple (AAPL.US) had third-quarter net profit of NT$325.3 billion (US$10.1 billion), with analysts averaging S$299.3 billion. Revenue increased 39% over the same period.

Since this year, TSMC's stock price has soared more than 70%, surpassing many of Asia's largest technology companies, reflecting the high expectations of the outside world for its artificial intelligence business. The company also raised its revenue forecast for 2024 in July, highlighting the continued spending expectations of companies such as Microsoft (MSFT.US) and Amazon (AMZN.US) on artificial intelligence infrastructure. The steady adoption of artificial intelligence should also help drive sales of iPhones and other electronic products.

After the financial report was announced, TSMC's ADR rose about 7% in night trading. The stock prices of Japanese chip equipment manufacturers, including Lasertec Corp., have also narrowed in the Tokyo stock market.

Despite this, investors will keep a close eye on changes in the outlook, as major supplier ASML.US (ASML.US) announced third-quarter results that fell short of expectations, orders were only half of analysts' expectations, and sales targets for next year were lowered. The chip-making equipment manufacturer blamed this on the slower than expected recovery in the automotive, mobile, and PC markets, which affected the chip factory's expansion plans. Executives say artificial intelligence is still a bright spot.

Charles Shum, an analyst at Bloomberg Intelligence, said, “TSMC's short- to medium-term revenue outlook remains solid, even though its largest equipment supplier, reported third-quarter orders for only half of what was expected, which suggests that global manufacturing capacity growth may slow. Strong demand from Nvidia, AMD (AMD.US), Apple, and Qualcomm (QCOM.US) for TSMC's 2- and 3-nm technology offset this impact. TSMC's excellent production yield, increasing EUV machine productivity, and leading position in 2.5D and 3D packaging provided further sales support.”

Even before Asmack's results were announced, some investors were wary about the sustainability of global AI spending. They question whether big tech companies like Meta (META.US) and Google (GOOGL.US) will continue to invest heavily in AI chips and data centers without truly killer artificial intelligence applications.

The risk of data center overcapacity and geopolitical issues have also made some investors uneasy. It was reported this week that Biden administration officials have discussed restricting sales of advanced artificial intelligence chips from Nvidia and other US companies in specific countries.

However, it appears that TSMC is still seeking rapid international expansion, despite official denials from the company.

According to a senior official from Taiwan, the company is planning to build more factories in Europe, focusing on the AI chip market. Prior to that, construction was ongoing in Japan, Arizona, and Germany.