TSMC Surges to Record High on Strong AI Chip Demand, Potential for Further Gains

Taiwan Semiconductor Manufacturing Company (TSMC), the world's largest contract chipmaker, has seen its stock price surge to a record high amid strong demand for its advanced chips used in artificial intelligence (AI) applications. The company is expected to report a 5% rise in first-quarter profit on Thursday, driven by robust sales to customers such as Apple and Nvidia.

TSMC's revenue in the first quarter also beat market expectations, growing 16.5% year-over-year and reaching the high end of the company's own guidance. Analysts believe that TSMC is likely to raise its revenue and capital expenditure forecasts for the year, as the AI boom has helped drive up the price of its shares, which have surged 36% so far in 2024 compared to a 14% gain for the broader market.

The company's leading position in advanced process technology has made it a prime beneficiary of the AI boom, with its dominance in the most advanced chip nodes leaving it well-placed to compound earnings at high rates. TSMC is currently budgeting capital expenditures of $32-36 billion for the full year and expects its revenue to grow at least 20%, reversing a slight decline in 2023.

To meet the growing demand and diversify its geographical footprint, TSMC is expanding its manufacturing operations globally, with projects underway to build plants in the U.S., Japan, and Germany. The company's new Arizona facility is being supported by a $6.6 billion federal grant and $5 billion in loans from the U.S. Chips Act.

Why this matters: TSMC's surge to a record high and potential for further gains highlight the significant impact of the AI boom on the semiconductor industry. As a key supplier to major tech companies and a leader in advanced chip manufacturing, TSMC's performance has far-reaching implications for the global technology sector.

Despite the geopolitical risks and challenges of diversifying manufacturing out of Taiwan, analysts believe that TSMC is undervalued and expect demand and sales growth to be higher for longer than what is currently priced into the stock. With its strategic position in vital technology niches like AI and its strong market presence, TSMC remains an attractive long-term investment option for those looking to capitalize on the growth of the semiconductor industry.

Key Takeaways

• TSMC, world's largest chipmaker, sees stock price surge to record high amid AI boom
• TSMC's Q1 profit expected to rise 5%, driven by strong sales to Apple, Nvidia
• TSMC likely to raise revenue, capex forecasts as AI demand boosts its share price
• TSMC expanding globally to meet demand, with new plants in US, Japan, Germany
• Analysts believe TSMC is undervalued, expect higher demand and sales growth