TSMC's AI-Driven Surge: Chipmaker Targets $300 Billion Sales Amid Global Expansion

As of last week, TSMC (TSM) showed a moderate gain of 0.28%. Despite a 1.87% decline over the past week, it has surged 17.52% since the start of the year, reflecting a heightened market capitalization of approximately USD 11,949.75 billion. This performance underscores the company's robust position within an evolving tech landscape, albeit amidst fluctuations that are typical in the semiconductor industry.

In the second quarter of this year, TSMC experienced a notable 39% increase in revenue, surpassing market expectations. This growth has been bolstered by the continuous proliferation of artificial intelligence (AI) technologies following the spike in interest surrounding ChatGPT. The Taiwanese chipmaker, a crucial supplier for Nvidia and Apple, recorded revenues reaching 934 billion New Taiwan dollars (about USD 32 billion), exceeding the analyst consensus of 928 billion New Taiwan dollars.

Investors have been gravitating towards AI-focused firms, rekindling enthusiasm for companies like TSMC after dispelling concerns over lower-cost AI models. Nvidia recently made history by attaining a valuation of USD 4 trillion, emphasizing investor confidence in TSMC’s pivotal role in developing AI infrastructure.

TSMC’s CEO, C.C. Wei, assured stakeholders that demand for AI chips continues to outstrip supply and maintained a promising outlook of 20% growth in sales in 2025, measured in dollar terms. The company plans to reinvest USD 100 billion to expand its manufacturing capabilities in Arizona and enhance capacities in Japan, Germany, and Taiwan.

Despite strong AI demand driven by major chip designers like Nvidia, TSMC’s primary revenue continues to depend on Apple and smartphone manufacturers. Investors remain cautious about tariff implications affecting the global economy and electronics sector, a remnant of trade tensions that have cooled expectations across various domains, including iPhone sales.

TSMC plans to announce its full second-quarter earnings on July 17. Analysts predict robust performance, driven by a 17% revenue increase, exceeding guidance forecasts that had suggested 11-14% growth. This expansion is attributed to the robust performance of the N3 production line, along with robust demand for the N5 series and urgent orders for older technology nodes.

Furthermore, even with the New Taiwan dollar (NTD) appreciating, analysts expect profit margins to remain within their guidance at 57.9%, benefiting from higher utilization rates and the pricing of urgent wafer orders. Industry forecasts indicate that key drivers seem more optimistic than three months prior, prompting TSMC to potentially elevate its 2025 revenue growth outlook to the upper range of 20% due to increased AI demand and limited reduction in Apple's orders.

TSMC continues to accelerate its expansion efforts in the U.S., notably in Arizona, where construction of its first three fabs is progressing: the P1 facility employing 4nm processes is set to commence production in Q4 2024, P2 slated for 3nm production, and the P3 fab, originally scheduled for completion by the end of 2030, now fast-tracked to conclude contracting by 2025.

This expedited pace reflects a strategic effort to align construction timelines closer to those witnessed in Taiwan, a significant boon for the Taiwanese supply chain. The structured approach of direct engagement with sub-system project leaders distinguishes TSMC’s capacity expansion model from the conventional EPC templates, enhancing its operational efficacy.

TSMC benefits from multiple favorable market dynamics, such as the burgeoning demand for Nvidia's GB300 AI chips and Apple’s iPhone 17 series, both expected to drive dollar-denominated revenues to record highs this quarter, projected to increase by 3-7%. The company anticipates surpassing USD 300 billion in sales this year, with future targets of breaking the USD 100 billion mark by 2025.

As TSMC enters its pre-announcement quiet period ahead of its earnings report, it remains poised to navigate currency fluctuations. The GB300 chip's impact is particularly emphasized in AI server assembly opportunities, which companies like Foxconn dominate. The AI chip enhances computational capabilities and provides substantial growth potential in global AI markets for TSMC.