TSMC Surges to New Heights: AI Boom and Strategic Wins Propel Record-Breaking Year

As of last week, TSMC's stock declined by 0.70%, marking a three-day losing streak with a 2.76% drop over the period. Despite this, the stock has seen a 2.24% increase over the past week and an impressive 98.34% rise year-to-date, bringing its market capitalization to a remarkable 1.04 trillion USD. In Taiwan, TSMC shares reached a new all-time high, suggesting the company might achieve its best annual performance in 25 years. Following a rally in U.S. chip stocks driven by a surge in Nvidia shares, TSMC shares rose by 1.4%, surpassing a previous peak.

The enthusiasm surrounding artificial intelligence has buoyed TSMC's stock, with a notable 84% appreciation year-to-date. Industry analysts continue to regard TSMC as a prime avenue for tapping into the AI market without facing unreasonable valuations. The forthcoming catalysts include Nvidia's CES 2025 presentations and TSMC's upcoming earnings and guidance releases. In addition to Nvidia, TSMC counts major tech companies such as Apple and AMD among its clientele, benefiting considerably from the surge in AI-related expenditures. For the December quarter, the company anticipates a 36% sales increase with a gross margin reaching 58.3%, the highest since 2022.

In the U.S., TSMC's Arizona factory will begin producing 4nm chips by late 2025, with potential outputs starting as early as the first quarter of that year. Initial monthly production is expected to reach 10,000 wafers, with companies like Apple, Nvidia, AMD, and Qualcomm set to benefit. The construction of this facility has previously faced delays due to labor shortages, and the planned 3nm production has been postponed to 2028. Despite these challenges, TSMC's foundational stance on the cost and efficiency advantages in Taiwan remains unchanged.

Looking toward 2025, TSMC plans further price adjustments for its advanced processes, including 3nm, 5nm, and the highly demanded CoWoS technology. Expected price hikes range from 5% to 10% for 3nm and 5nm, and 15% to 20% for CoWoS. These technologies significantly contributed to TSMC's third-quarter revenue, with 3nm and 5nm accounting for respectively 20% and 32% of wafer sales. In contrast, TSMC offers price reductions for mature node processes, driving an increase in market competitiveness.

Meanwhile, TSMC continues to secure strategic wins, notably clinching the entire order to produce Qualcomm’s Snapdragon 8 Elite 2 chips, outpacing Samsung due to superior process yield on the N3P platform. Although Qualcomm had considered diversifying its production sources, Samsung's challenges with its 3nm GAA yield proved insurmountable, cementing TSMC’s role as the chief supplier. This decision reflects the broader competitive landscape, where TSMC's technical advantages and capacity commitments outweigh rivals. Qualcomm's pursuit of a “Dual source” strategy fell through, suggesting potential price adjustments in future chip production costing strategies.