Why J.P. Morgan Identifies TSMC as a Key Player in the AI Field

As the world rushes to make use of the latest wave of AI technologies, one piece of high-tech hardware has become a surprisingly hot commodity: the graphics processing unit, or GPU. A top-of-the-line GPU can sell for tens of thousands of dollars, and leading manufacturer $NVIDIA(NVDA.US)$ has seen its market valuation soar past US$2 trillion as demand for its products surges. Amidst this surge, $JPMorgan(JPM.US)$ analyst Gokul Hariharan's team has identified TSM as a pivotal force in AI processing both in data centers and at the edge, anticipating significant expansion driven by AI over the next three to four years.

Major datacenter GPUs, such as those from Nvidia, $Advanced Micro Devices(AMD.US)$, Intel Habana Gaudi, and high-volume ASICs like $Amazon(AMZN.US)$ Inferentia/Tranium, $Alphabet-A(GOOGL.US)$'s Google TPU, and $Microsoft(MSFT.US)$ aia, are all being manufactured by TSMC.

Recent reports suggest that $Intel(INTC.US)$ may outsource the production of some CPU components of its upcoming Arrowlake CPUs to TSMC, in addition to the Lunarlake mobile processors and key chiplets in other PC platforms. Checks indicate a growing likelihood of this happening, which could lead to even stronger growth from Intel's outsourcing to TSMC in 2025-26. This shift could result in TSMC manufacturing approximately 90% of PC CPUs in the first half of 2025 (including Intel Arrowlake, Lunarlake, Apple M3, and AMD Zen processors), significantly broadening TSMC's market within high-performance computing (HPC).

TSMC is expected to see a robust pipeline for its N3 technology in 2024 and 2025 with increased demand from clients such as Bitmain, $Qualcomm(QCOM.US)$, and Intel. Despite a slight dampening in Apple's demand due to weaker iPhone sales and no significant die-size growth in upcoming processors, growth from Bitmain is anticipated due to a recovery in cryptocurrency pricing. Qualcomm is also increasing orders to cater to rising AI smartphone demand and its strong presence in the high-end market segment.