Taiwan Semi outpaces expectations, reassures market with solid CapEx outlook

Taiwan Semiconductor Manufacturing Company (TSMC) delivered an outstanding Q3 2024 earnings report, exceeding analysts' expectations on both earnings per share (EPS) and revenue, further solidifying its position as the world's largest chipmaker. TSMC reported EPS of NT$12.54 ($1.94 per ADR), significantly surpassing the consensus estimate of $1.77. Additionally, TSMC generated NT$759.69 billion ($23.5 billion) in revenue, outpacing analyst expectations of $23 billion. This performance was driven by robust demand for the company's advanced 3nm and 5nm process technologies, particularly for smartphones and artificial intelligence (AI) applications, underscoring the company’s central role in the global semiconductor industry.

A major highlight of TSMC's earnings was its raised outlook for full-year 2024 revenue, which is now expected to grow by nearly 30% in U.S. dollar terms, compared to its previous guidance of slightly above the mid-20% range. This upward revision reflects the ongoing strength in demand for AI chips and advanced semiconductors, which are critical to powering industries ranging from smartphones to high-performance computing. The company’s Q4 2024 guidance also outpaces expectations, with projected revenue between $26.1 billion and $26.9 billion, significantly higher than the estimated $24.94 billion, signaling continued growth momentum.

TSMC's strong margins further impressed investors. In Q3 2024, the company achieved a gross margin of 57.8%, up from 53.2% in Q2 2024 and well above the consensus estimate of 54.8%. Operating margins also improved, reaching 47.5% compared to 42.5% in the previous quarter. These improvements are reflective of TSMC's ability to command premium pricing for its advanced chip technologies, which are critical for AI and other next-generation applications. The company guided for Q4 2024 gross margins between 57% and 59%, and operating margins between 46.5% and 48.5%, continuing to set a strong outlook for profitability.

Capital expenditure (CapEx) guidance, which is critical for the entire semiconductor industry, was a key focus of TSMC's report. The company reaffirmed its 2024 CapEx to slightly exceed $30 billion, compared to its earlier guidance of $30-$32 billion. Additionally, TSMC hinted at even higher CapEx for 2025, reflecting its aggressive push to expand production capacity to meet the surging demand for advanced chips. Although the company did not provide a specific figure for 2025 CapEx, its CEO C.C. Wei emphasized that demand remains strong, particularly in AI, and TSMC is positioning itself to capitalize on this for years to come.

TSMC’s robust performance in Q3 2024 helped offset concerns raised by the weaker-than-expected earnings report from ASML, the world’s largest supplier of chipmaking equipment, earlier in the week. ASML’s cautious outlook for 2025 had sparked doubts about the sustainability of the AI-driven semiconductor boom, but TSMC’s results provided reassurance that demand for AI chips remains strong and that the industry is far from a bubble. As TSMC continues to dominate the market for cutting-edge chips, especially in AI-related fields, its results underscore its leadership over rivals such as Samsung and Intel.

Looking ahead, TSMC provided a promising long-term outlook, signaling that demand for its products is expected to remain strong well into 2025 and beyond. The company highlighted that revenue from AI processors is expected to make up a mid-teens percentage of its overall revenue in 2024, and this trend is likely to continue in the coming years. TSMC’s leadership in 3nm and 5nm technologies has positioned it as a key player in the AI revolution, which Chairman and CEO C.C. Wei described as a multi-year growth driver for the company.

TSMC’s strategic expansion into overseas manufacturing, particularly its ongoing projects in Arizona, was also a point of emphasis in the earnings report. The company is spending tens of billions of dollars building new factories in the U.S. to mitigate geopolitical risks and strengthen its global footprint. While the first fab in Arizona is expected to begin volume production in 2025, TSMC acknowledged that its most advanced chips may not be manufactured on U.S. soil until 2028, underscoring the complex and lengthy nature of semiconductor manufacturing. Despite these challenges, the company is confident that its long-term strategy will pay off.

In conclusion, TSMC’s Q3 2024 earnings report not only exceeded expectations but also provided a much-needed boost of confidence for the broader semiconductor industry, which has been grappling with concerns about the sustainability of AI-driven demand. TSMC’s raised revenue outlook, strong margins, and robust CapEx plans signal that the company is well-positioned to capitalize on the growing demand for advanced semiconductors. While geopolitical risks and competitive pressures remain, TSMC’s dominant position and continued investment in cutting-edge technology suggest that it will remain a critical player in the global semiconductor market for years to come.