What to Expect From TSM's Upcoming Earnings

Taiwanese chipmaker TSMC reported a 16.5% increase in revenue for the first quarter on last Wednesday, surpassing market forecasts and aligning with the upper range of the company's own projections, driven by strong demand for chips used in artificial intelligence applications. TSMC holds the title of the largest semiconductor foundry on the globe. Research from the firm Statista indicates that TSMC commanded a 61.2% share of the worldwide chip foundry market in the fourth quarter.

The first half of the year is traditionally quieter for Taiwanese tech firms, coming after the end-of-year holiday rush for goods like tablets and smartphones in major Western markets, but the AI trend is boosting demand even in the off season. For March alone, TSMC reported revenue rose 34.3% year-on-year to T$195.21 billion and was up 7.5% from the previous month.

It's worth mentioning that Nvidia, whose shares have soared by 242.5% in the past year, depends on TSM for its chip production needs. In contrast, the stock market performance of TSM itself has seen a more modest increase of 71.5% over the same timeframe, as can be observed in the comparative image provided below.

Amidst the surge in artificial intelligence, bolstered investment from the United States, and an appealing market valuation, TSM presents itself as an enticing investment option at the moment. Moreover, the company reaffirmed in January 2024 that its AI revenues are growing rapidly at approximately 50% annually. This reaffirmation is particularly reassuring following the revenue decline reported in 2023.

TSM's client base is heavily dependent on the company for the fabrication of their custom-designed chips, and the current boom in artificial intelligence has significantly increased the demand for AI chips. In a conducive move, TSM has additionally received a substantial boost from the U.S. government, securing $11.6 billion in direct federal funding through the CHIPS Act. This includes $6.6 billion in grants to expand its manufacturing plant in Phoenix, Arizona, and it is also eligible for a further $5 billion loan.

The company is utilizing this funding to add a third factory to the two it has already committed to building at the Phoenix site, with its total investment in the project amounting to an estimated $65 billion. This investment represents what has been described as the "largest foreign direct investment in a greenfield project in U.S. history."

Looking ahead, TSM has plans to commence production of 2-nanometer technology chips at its second factory by 2028. Over the next few years, TSM is poised to benefit from these significant investments, which are expected to substantially upgrade its manufacturing capabilities and incorporate cutting-edge technological innovations.