The optimism over AI demand in Taiwan Semiconductor Manufacturing Company's (TSM) blowout third quarter earnings boosted chip stocks Thursday.
TSMC posted a quarterly profit of $325.3 billion New Taiwan dollars ($10.1 billion), up 54% from the prior year, surpassing Wall Street's forecasts. The company also raised its full-year sales outlook, with revenue rising 29% in 2024 compared to last year, bumping up the prior guidance in the mid-20s.
Here's what else the company reported:
The positive outlook was largely driven by "extremely robust AI-related demand" cited by TSMC CEO C.C. Wei. The chip manufacturer expects AI revenue to more than triple in 2024.
US-listed TSMC shares jumped 13% on the news, pushing the company's market capitalization past the $1 trillion mark and fueling a rise in chip stocks across the board. Nvidia (NVDA) rose 2.6% Thursday, while Advanced Micro Devices (AMD) jumped 1.3% before paring gains. Qualcomm (QCOM) ticked up 1.3%, and Broadcom (AVGO) surged 2.9%.
After underperforming the S&P 500 (^GSPC) earlier this week, the PHLX Semiconductor (^SOX) index gained 2% Thursday, outpacing the S&P 500's 0.13% increase.
TSMC is one of three companies capable of manufacturing AI chips that have been crucial to the massive wave of AI innovation following the launch of OpenAI's ChatGPT in 2022. The Taiwanese company dominates rivals Samsung (005930.KS) and Intel (INTC) in the AI semiconductor market. TSMC makes the artificial intelligence chips designed by AI superpower Nvidia and its rival Advanced Micro Devices, and those chips are used in data centers to power AI software such as ChatGPT and other popular bots. Other major TSMC customers include Apple (AAPL), Qualcomm, and Broadcom.
TSMC's sunny third quarter earnings and full-year outlook are a welcome sign for angsty investors worried over the future of the AI space. Wall Street analysts have signaled concerns in recent months over the lack of a near-term return on investment for Big Tech firms spending massive sums on AI infrastructure. The worry is that tech companies could ease spending on AI hardware, causing a downturn in shares of companies like Nvidia and its supplier TSMC.
Those fears were on display earlier this week, when an AI equipment company's woes prompted a rout in global chip stocks. Dutch tech giant ASML (ASME.DE) indicated in its third quarter earnings release this week that sales of its machines -- which are used by TSMC to make Nvidia's leading AI chips -- would ease. Though ASML's results were driven by geopolitical concerns and other factors unrelated to the AI chip market, easily spooked investors sold off shares of Nvidia, AMD, and AVGO, with the stocks suffering sharp declines.
TSMC's results helped those AI chip stocks partially recover from those losses.
Analysts, however, did put TSMC executives in the hot seat during a call Thursday, probing company leaders about whether there's an AI bubble.
"We believe the AI demand is real," Wei responded, "and it will continue for many years."
"Almost every AI innovator is working with TSMC, and so we probably get the deepest and widest look of anyone in this industry," he continued.
The AI chip market is set to grow 99% in 2024 and another 74% next year, according to consulting firm International Business Strategies, which tracks industry data. Meanwhile, the semiconductor market overall is projected to grow 18% this year and 12% in 2025. IBS data shows the AI chip market -- also known as the accelerator chip market -- outpacing the sector at large through 2030.
Wall Street analysts on Thursday reiterated their Buy ratings on TSM.
"[W]e recommend TSMC stock as a core holding for investors who look to invest in semiconductors, which we view as the foundation of the expanding digital economy," Needham analyst Charles Shi wrote in a note to investors Thursday.
Laura Bratton is a reporter for Yahoo Finance. Follow her on X @LauraBratton5.
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