Chip Stocks Surge as TSMC Projects Strong AI Demand Beyond 2024

Optimism surrounding artificial intelligence (AI) demand gave chip stocks a significant boost Thursday following Taiwan Semiconductor Manufacturing Company’s (TSMC) third-quarter earnings report. The company exceeded Wall Street’s expectations and raised its full-year sales forecast, driven by robust demand for AI chips.

TSMC’s Impressive Earnings and Raised Outlook

TSMC reported a quarterly profit of New Taiwan Dollars (NT) $325.3 billion ($10.1 billion), marking a 54% increase compared to the same period last year. The company’s adjusted earnings per share came in at NT$12.54 ($0.39), surpassing the expected NT$11.55 ($0.36). Meanwhile, revenue reached NT$759.7 billion ($23.5 billion), higher than the forecast of NT$751.1 billion ($23.3 billion).

The positive outlook, highlighted by TSMC CEO C.C. Wei, was largely driven by “extremely robust AI-related demand,” with the company forecasting AI-related revenue to triple in 2024.

Impact on Chip Stocks

Following the announcement, US-listed TSMC shares surged nearly 12%, pushing the company’s market capitalization past the $1 trillion mark. The news also fueled a broader rally in chip stocks. Nvidia rose 3%, briefly hitting an all-time intraday high, while Advanced Micro Devices (AMD) gained 1.3%. Qualcomm saw a 1.7% uptick, and Broadcom surged 4.4%.

The PHLX Semiconductor Index, which had underperformed the S&P 500 earlier in the week, jumped 2%, outpacing the broader market’s 0.13% rise.

AI Demand to Drive Growth for Years

TSMC plays a crucial role in AI chip production, manufacturing chips for major clients like Nvidia and AMD. These chips are vital for powering AI technologies, such as OpenAI’s ChatGPT, which launched in 2022. As a dominant player in the AI semiconductor market, TSMC continues to outshine rivals Samsung and Intel.

Despite recent investor concerns over AI infrastructure spending, TSMC’s optimistic earnings report has reassured markets that AI demand will remain strong. CEO Wei emphasized that TSMC’s deep relationships with nearly all AI innovators give the company unparalleled insight into the future of AI growth.

“We believe the AI demand is real,” Wei said during the earnings call, “and it will continue for many years.”

Recovering from Investor Worries

Earlier in the week, chip stocks faced a sharp selloff following disappointing earnings from Dutch tech giant ASML, which manufactures equipment used by TSMC to produce Nvidia’s AI chips. Geopolitical concerns and other unrelated factors contributed to the selloff, but TSMC’s strong third-quarter performance helped the sector rebound.

The Future of AI Chip Market

According to industry data from consulting firm International Business Strategies (IBS), the AI chip market is set to grow 99% in 2024, followed by another 74% in 2025. In contrast, the overall semiconductor market is expected to grow 18% in 2024 and 12% in 2025. This acceleration in AI chip demand positions TSMC at the forefront of the market for years to come.

Wall Street analysts remain bullish on TSMC, with Needham analyst Charles Shi reiterating a Buy rating, stating, “We 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.”