Taiwan Semiconductor shares jump on AI outlook

Shares in Taiwan Semiconductor Manufacturing Company (NYSE:TSM), often referred to as TSMC, opened 4.8% higher on 15 January following an earnings beat and uncharacteristically bullish outlook for the artificial intelligence (AI) sector.

TSMC’s earnings rose 35% year-on-year to $3.14 per share, beating analysts’ expectations of $2.53.

Revenue rose 25.5% to $33.7 billion, ahead of estimates of $32.9 billion.

As impressive as these numbers are, it was TSMC’s forward guidance that grabbed markets’ attention.

“Management sees AI demand growing at an eye-popping 55–59% annually through 2029, and cloud giants are already knocking on its door to offer any help they can to secure future capacity,” said Matt Britzman, senior equity analyst at Hargreaves Lansdown. “That confidence is backed by action – TSMC is pulling forward fab build-outs in Taiwan and the US, accelerating its Arizona expansion, and buying extra land for advanced packaging.”

TSMC’s core position at the heart of the AI ecosystem means that strong demand for its products is a good indicator of general demand for AI.

The company’s management has a reputation for being cautious with forward guidance. “This aggressive build-out suggests they see a durable runway for AI demand stretching well into the next decade,” said Britzman.

As such, the forward guidance is a strong indicator against the argument that the AI stocks are in a bubble that is set to burst.

The Nasdaq 100, which is dominated by tech and AI stocks, opened 1.2% higher on 15 January, though broader US stocks were subdued; the S&P 500, though, opened 0.4% lower.

What does TSMC do?

Taiwan Semiconductor is a semiconductor “fab” (short for “fabrication”) company. In other words, it makes the chips that companies like Nvidia and AMD design.

Making computer chips, especially the cutting edge ones that are used for AI, is very technologically advanced. TSMC is one of only a handful of companies that can make chips using the most advanced 2nm process. It is widely regarded as the best manufacturer of AI chips in the world.

This gives it something approaching a monopoly over the manufacture of AI chips. Most of the industry’s main players are competing hard against each other to build the best products; they cannot afford to scrimp when it comes to the building blocks.

So while it has historically been one of the unsung heroes, TSMC is quietly powering the AI revolution. Some experts have therefore called it the most important company in the world.

“These results aren’t just good for TSMC – they’re a roadmap for where the next leg of AI investment is headed,” said Britzman.