Taiwan Semiconductor (TSM) Stock Surges on Strong Q3 Earnings: AI, 3nm Drive Growth
Shares of Taiwan Semiconductor Manufacturing Co. (TSM), a key supplier to tech giants like Nvidia (NVDA), soared on Thursday after the company delivered a robust third-quarter earnings report. The strong performance was driven by a surge in demand for its advanced 3nm and 5nm technologies, particularly for smartphones and artificial intelligence (AI) applications.
TSM reported third-quarter revenue of 759.69 billion New Taiwan dollar ($23.50 billion), a 39% increase year-over-year. This exceeded the company’s guidance of $22.4 billion-$23.2 billion and surpassed analysts’ expectations. The chipmaker attributed the stellar performance to the robust demand for its cutting-edge technologies.
Strong Gross Margins and AI Growth
TSM’s gross margin for the quarter reached 57.8%, up from 54.3% a year ago, showcasing the company’s ability to navigate cost challenges. The operating margin also expanded to 47.5% from 41.7% a year ago. These positive trends reflect TSM’s strong position in the industry and its ability to capitalize on increasing demand for advanced semiconductor technologies.
Looking ahead, TSM expects fourth-quarter revenue to range between $26.1 billion and $26.9 billion, exceeding the Street consensus estimate of $24.86 billion. This optimistic outlook further reinforces the company’s confidence in its future growth trajectory.
AI Revenue Takes Center Stage
TSM’s focus on AI is evident in its plans to triple AI revenue this year. The company expects AI to account for mid-teens percent of its total revenue in 2023. This translates to an estimated AI revenue of $13 billion for the year, significantly higher than the estimated $4 billion in 2022. TSM projects AI to contribute a significant 20% to its total revenue by 2028.
Apple Demand Drives Growth
Needham analyst Charles Shi reiterated his Buy rating on TSM with a $210 price target. He highlighted the strong performance of TSM’s 3nm technology, attributing the upside primarily to Apple’s (AAPL) demand. However, Shi noted that 5nm revenue is leveling off after a period of consistent growth.
Expanding Non-Wafer Revenue
TSM’s non-wafer revenue, which includes packaging, saw a significant increase from $2.4 billion in the second quarter to $3.2 billion in the third quarter, a 36% sequential jump. This growth is likely driven by Apple’s demand for advanced packaging solutions, particularly its InFO technology. The magnitude of the sequential growth suggests that TSM might have expanded its CoWoS capacity significantly in the third quarter.
CapEx Guidance
TSM has trimmed its 2024 capital expenditure (CapEx) budget to slightly above $30 billion, down from the previous range of $30 billion-$32 billion. The company expects to spend around $12 billion in CapEx during the fourth quarter, driven by the initial buildout of its 2nm technology.
Positive Market Reaction
The market responded favorably to TSM’s strong earnings report. TSM stock closed up 11.7% at $209.41 on Thursday. The company’s robust growth prospects, particularly in the AI sector, and its ability to navigate cost challenges have boosted investor confidence in its future performance.
