Taiwan Semiconductor Manufacturing Company (TSMC) has seen substantial growth and investor excitement due to its strong performance in the AI chip market. Key highlights include a 33% year-over-year increase in June 2024 revenue, forecasting a 50% annual growth rate in AI chip demand over the next five years, and rapid advancements in chip technology. TSMC’s 3nm chips already represent 9% of Q3 2024 revenue, with 2nm chips expected to launch in 2025, showing higher demand due to efficiency. TSMC’s shares have surged 78.1% year-to-date. The company is anticipated to have a positive industry impact, with expected earnings growth of 22% in 2024 and 26% in 2025. Additionally, TSMC’s upcoming 2nm technology promises advancements in performance and efficiency, potentially reshaping the semiconductor industry. The global AI chip market is projected to grow significantly, driven by widespread AI adoption, with market size expected to reach $372.01 billion by 2032.

AI-Related Chip Demand

TSMC’s optimistic forecast for AI-related chip demand has generated significant excitement. The company projects a 50% compound annual growth rateThe world of finance is replete with complex concepts, but one that stands as a cornerstone for investors seeking to gauge returns is the Compound Annual Growth Rate (CAGR). Often ... More (CAGR) in AI chip sales over the next five years. By the end of this period, AI chips are expected to constitute over 20% of TSMC’s revenue. This anticipated growth is driven by the increasing integration of AI across various sectors, enhancing the need for advanced semiconductor technologies.

Advanced Chip Technology

The advancement in chip technology is a key factor behind TSMC’s strong market position. The company’s 3nm chips have quickly gained traction, accounting for 9% of its revenue in Q3 2024. Building on this success, TSMC is actively developing 2nm chips, which are slated for release in 2025. The demand for 2nm chips is already surpassing that of 3nm and 5nm chips, primarily due to their enhanced efficiency—a critical attribute for AI applications.

Innovative Transistor Design

A standout feature of TSMC’s upcoming 2nm technology is the introduction of nanosheet gate-all-around (GAA) transistors, replacing the current FinFET design. This new architecture allows for superior control of electron flow, significantly improving overall chip performance.

Backside Power Delivery

To further enhance chip efficiency, TSMC is developing a 2nm process with backside power delivery (BSPDN) technology, aimed specifically at high-performance computing (HPC) customers. Expected to be available in 2026, this innovation promises substantial improvements in power efficiency and performance for demanding applications.

Stock Performance and Industry Impact

TSMC’s impressive financial performance has been mirrored in its stock market performance. As of July 16, 2024, TSMC’s shares have appreciated by 78.1% year-to-date, vastly outperforming the S&P 500 index. This surge in stock value reflects investor confidence in TSMC’s strategic direction and market leadership.

Positive Industry Outlook

TSMC’s strong performance is seen as a positive indicator for the broader semiconductor market. As the world’s largest semiconductor manufacturer, TSMC’s success bolsters confidence in companies that rely on its chip manufacturing capabilities, such as AMD and NVIDIA. This positive sentiment is further supported by analysts’ projections, which anticipate TSMC’s earnings per shareEarnings per share (EPS) is a fundamental financial metric that provides valuable insights into a company's profitability. This widely used indicator helps investors and analysts g... More to rise by 22% in 2024 and 26% in 2025.

Anticipated Earnings Growth

Analysts’ optimistic forecasts for TSMC’s earnings growth contribute to the company’s robust valuation. The anticipated increase in earnings per share underscores TSMC’s capacity to sustain its growth trajectory and maintain its competitive edge in the semiconductor industry.

Strong Customer Interest and Ecosystem Development

TSMC has reported strong interest from customers for its 2nm process, suggesting that major tech companies are eager to adopt this cutting-edge technology for their future products. Apple, in particular, is expected to be TSMC’s primary client for 2nm chips, likely debuting in the iPhone 17 lineup. This partnership could provide Apple with a competitive advantage in the smartphone market, potentially setting a trend for other manufacturers to follow.

Ecosystem Development

To ensure a smooth transition to 2nm technology, TSMC is collaborating closely with its partners through its Open Innovation Platform (OIP). This initiative aims to prepare the necessary electronic design automation (EDA) tools, verification tools, and IP well in advance of the 2nm production launch. This collaborative approach is likely to accelerate adoption and foster innovation within the semiconductor industry.

Market Forecast For AI-related Chips

The demand for AI-related chips is projected to grow significantly in the coming years, driven by increasing adoption of AI technologies across various industries. Here are the key forecasts and insights:

1. Market Size Growth: The global AI chip market is expected to grow from $53.7 billion in 2023 to $71.3 billion in 2024, representing a substantial year-over-year growth of over 30%.
2. Long-term Projection: By 2032, the AI chip market is forecast to reach $372.01 billion, growing at a compound annual growth rate (CAGR) of 38.16% from 2023 to 2032.
3. Driving Factors: The surge in demand is attributed to several factors:
   • Widespread integration of AI across diverse industries
   • Increasing investments in research and development for AI chip technologies
   • Growing adoption of deep learning applications
   • Rising demand for edge computing and IoT devices
   • Expansion of AI in healthcare, autonomous vehicles, and other sectors
4. Industry-specific Growth: Sectors like healthcare, automotive (for autonomous vehicles), and IoT are expected to significantly contribute to the demand for AI chips.
5. Technological Advancements: The continuous evolution of AI technologies, including deep learning and machine learning, is driving the need for more sophisticated and powerful AI chips.
6. Market Challenges: Despite the strong growth forecast, the industry faces challenges such as high development costs, complexity of integration with existing systems, and regulatory concerns.

This rapid growth in demand for AI chips reflects the increasing importance of AI technologies across various sectors and the need for specialized hardware to support complex AI computations and applications.

Insights

1. TSMC’s revenue from AI chips is expected to grow rapidly, reaching over 20% of total revenue.
2. Advanced 2nm chip technology will enhance performance and power efficiency.
3. Strong investor confidence is reflected in TSMC’s stock performance and projected earnings growth.

The Essence (80/20)

Core Topics:

1. Strong Financial Performance: TSMC’s 33% revenue increase and 78.1% YTD stock appreciation highlight robust growth.
2. AI Chip Market Growth: Projected 50% annual growth rate in AI chips, expecting to constitute 20% of TSMC’s revenue.
3. Advanced Technology Development: Rapid progress in 3nm and upcoming 2nm chips, which are expected to drive future growth.
4. Positive Industry Outlook: TSMC’s leadership influences broader semiconductor market confidence, benefiting companies like AMD and NVIDIA.

Detailed Descriptions:

1. Revenue and Stock Performance: Strong financial metrics reflect high demand and effective business strategies.
2. AI Market Projections: Significant anticipated growth due to increasing AI technology adoption across industries.
3. Technological Advancements: Innovative 2nm technology, including nanosheet GAA transistors and BSPDN, positions TSMC at the forefront of efficiency and performance.
4. Market Leadership: TSMC’s influence as the largest semiconductor manufacturer boosts overall market optimism.

The Action Plan – What TSMC Will Do Next

1. Invest in AI Chip Development: Focus R&D efforts on AI chip technology to meet the rising demand.
2. Accelerate 2nm Technology Launch: Ensure timely development and production of 2nm chips to maintain technological leadership.
3. Enhance Industry Partnerships: Strengthen collaborations through platforms like the Open Innovation Platform (OIP) to drive ecosystem readiness.
4. Monitor Market Trends: Stay updated on AI market growth and sector-specific demands to align production strategies.

Blind Spot

Supply Chain Risks: Potential disruptions in the semiconductor supply chain could impact TSMC’s production capabilities. Addressing these risks through diversified sourcing and contingency planning is crucial.

TSM Technical Analysis

The provided chart is for Taiwan Semiconductor ADR (TSM). Here is the comprehensive technical analysis based on the given data:

Price Trend and Moving Averages:

• The stock is currently priced at 184.00.
• The 50-day moving average (blue line) is at 167.18, and the 200-day moving average (red line) is at 128.31.
• The stock price is above both the 50-day and 200-day moving averages, indicating an upward trend.

Volume:

• The volume for the latest trading session is 16.66 million. There has been a steady volume trend, with notable spikes correlating with significant price movements.

Relative Strength IndexIn the world of technical analysis, the Relative Strength Index (RSI) stands as a cornerstone tool for traders seeking insights into market momentum. Developed by J. Welles Wilder ... More (RSI):

• The RSI is currently at 60.06. This value suggests the stock is neither overbought nor oversold, indicating a neutral momentum.

On Balance VolumeThe On Balance Volume indicator (OBV) is a technical analysis tool used to measure the flow of money into and out of a security over a specified period of time. It is a cumulative ... More (OBV):

• The OBV is at 45,317,894. The overall OBV trend appears flat, suggesting that the buying and selling pressure is relatively balanced.

Stochastic RSIIn the realm of technical analysis, the Stochastic RSI (StochRSI) emerges as a powerful tool for traders seeking to navigate market dynamics with precision. Developed by Tushar S. ... More:

• The Stochastic RSI is at 0.220. This low value indicates the stock is in the oversold territory, which could signal a potential buying opportunity if the trend reverses.

Average Directional IndexThe Average Directional Index (ADX) stands as a cornerstone indicator in the toolkit of technical traders, offering insights into the strength of market trends. Developed by Welles... More (ADX):

• The ADX is at 36.45. This indicates a strong trend, but it does not specify the direction. The high ADX value supports the current upward trend.

Chaikin OscillatorNamed after its creator Marc Chaikin, the Chaikin Oscillator stands as a formidable tool in the arsenal of technical analysts. This oscillator is designed to measure the accumulati... More:

• The Chaikin Oscillator is at -9,999,693. This negative value indicates selling pressure. A negative Chaikin Oscillator suggests that distribution (selling) might be occurring, even though the overall trend is upward.

Summary:

• 3-month horizon: Hold. The upward trend is strong, but the Stochastic RSI indicates the stock might be oversold.
• 6-month horizon: Buy. Given the positive trend above moving averages and neutral RSI, the stock has room for growth.
• 12-month horizon: Buy. The long-term upward trend supported by moving averages suggests a continued positive outlook.

Past performance is not an indication of future results. Always conduct your own research and consider consulting with a financial advisor before making any investment decisions. 🧡

Looking Ahead

TSMC’s advancements in semiconductor technology, particularly its development of 2nm chips, are poised to revolutionize the industry. The company’s strong financial performance, coupled with its innovative technology and strategic partnerships, positions TSMC at the forefront of the semiconductor market. As AI and high-performance computing continue to drive demand for advanced chips, TSMC’s role as a key enabler of technological progress is set to expand, promising substantial benefits for investors and the broader tech industry.

Frequently Asked Questions about TSMC