Taiwan Semiconductor Manufacturing Company Limited (TSM)valued at $866.70 billion, is the cornerstone of the global semiconductor industry and is increasingly instrumental 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 essential.
This article explores why TSMC is vital to the AI ecosystem and why investors should keep a close eye on this semiconductor giant.
TSMC’s vital role in the AI revolution
TSM, headquartered in Hsinchu, Taiwan, is the world’s leading semiconductor foundry. The company cultivates a dynamic ecosystem of global customers and partners, offering industry-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 is investing heavily in developing new process technologies and strengthening its manufacturing capabilities. 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 driver of growth and protection against technological obsolescence.
TSMC offers the most advanced and extensive range proprietary foundry process technologiesincluding 2nm technologies, 3nm technology, 5nm technology and 7nm technology, among others. This comprehensive portfolio supports many applications, from cutting-edge consumer electronics to high-performance computing and artificial intelligence innovations.
At the 2024 North American Technology Symposium in April, the chip giant showcased its latest semiconductor process, advanced packaging and 3D IC technologies, demonstrating its silicon leadership for the next wave of AI innovations. The debuted TSMC A16™ technologywhich features state-of-the-art nanosheet transistors with an innovative backside power solution, to be produced in 2026. The new technology promises significant improvements in logic density and performance.
Meanwhile, extending the reach of TSMC’s advanced technology to a wider range of applications, the company announced N4C, an extension of N4P technology with up to 8.5% reduction in die cost and minimal adoption effort, and is planned for volume production in 2025.
In addition, TSMC introduced its System-on-Wafer (TSMC-SoW™) technology, a breakthrough solution designed to deliver revolutionary performance at the wafer level to address the future AI needs of hyperscale data centers. The company is also promoting its Compact Universal Photonic Engine (COUPE™) technology to support the rapid increase in data transmission requirements due to the explosion of artificial intelligence.
In addition, large technology companies, including c, Advanced Micro Devices, Inc. (AMD)and Apple Inc. (AAPL)they rely on TSMC to produce their most advanced processors and GPUs.
Q2 2024 revenue and earnings beat analysts’ expectations
TSM’s revenue and earnings beat analysts’ estimates in the second quarter of 2024 as demand for advanced chips used in artificial intelligence applications continues to grow. For the second quarter ended June 30, 2024the company’s net income rose 40.1% year over year to $20.82 billion. That beat analysts’ revenue estimate of $20.09 billion.
In the second quarter, the company’s 3-nanometer shipments made up 15% of total wafer revenue, 5-nanometer accounted for 35% and 7-nanometer accounted for 17%. Advanced technologies, defined as 7-nanometer and more advanced technologies, accounted for 67% of total wafer revenue.
The company’s gross profit was $11.07 billion, up 37.6% from the previous quarter. TSMC’s non-GAAP income from operations rose 41.9% year over year to $8.86 billion. Net revenue and earnings per ADR were $7.66 billion and $1.48, up 36.3% 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 were $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.” he said Wendell Huang, Chief Financial Officer of TSMC. “Going into the third quarter of 2024, we expect our business to be supported by strong smartphone and AI demand for our advanced process technologies.”
Additionally, TSMC expects third-quarter revenue of between $22.40 billion and $23.20 billion. This compares to revenue of $17.30 billion reported in the same period in 2024. The company’s gross margin is forecast to be between 53.5% and 55.5%, and its operating margin is expected to be between 42.5 % and 44.5%.
Bottom line
TSMC remains a prominent player in the rapidly growing 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 central role in powering next-generation artificial intelligence applications.
The company’s comprehensive suite of proprietary foundry processing technologies, including industry-leading 2nm, 3nm and 5nm technologies, alongside recent breakthroughs such as TSMC A16™ and System-on-Wafer (TSMC-SoW™) technologies, underpin its strategy importance for shaping the future of artificial intelligence.
The impressive financial performance in the second quarter of 2024, where revenue and EPS exceeded analysts’ expectations, underscores TSMC’s strong position and resilience in the market. As demand for advanced chips continues to grow, particularly in artificial intelligence and high-performance computing, TSMC’s innovative solutions and strong financial health position it well for sustainable growth and profitability.
Susquehanna analyst Mehdi Hosseini maintained Positive on TSM shares, with a $250 price target. Additionally, in July, Needham reaffirmed Market evaluation on TSM shares with a price target of $210.
Against this background, investors could consider adding TSMC to their portfolio, particularly if they want to gain exposure to the growing field of artificial intelligence. However, it is also important to remain mindful of potential risks, including geopolitical tensions and market fluctuations, that could affect the semiconductor industry.