Taiwan Semiconductor Manufacturing Company (TSM, Financial) saw a significant 13% rise today following an impressive Q3 earnings report. This surge has positively impacted other semiconductor stocks, including Broadcom (AVGO, Financial) up 3%, Arm Holdings (ARM, Financial) up 2.6%, Micron Technology (MU, Financial) up 2.3%, NVIDIA (NVDA, Financial) up 2.3%, and Analog Devices (ADI, Financial) up 1.6%. Semiconductor equipment companies like Applied Materials (AMAT, Financial) and Lam Research (LRCX, Financial) also saw gains of 1.5% and 1.1%, respectively. TSM reported a double-digit EPS beat for the first time in a year, with Q3 revenue rising 36% year-over-year and 12.9% sequentially to $23.5 billion, exceeding the high end of its guidance range.
Key Highlights:
- TSM's Q4 revenue guidance of $26.1-26.9 billion surpassed analyst expectations.
- Operating margin in Q3 was 47.5%, above the prior guidance of 42.5-44.5%, with Q4 operating margin expected between 46.5-48.5%.
- Strong demand from smartphones and AI-related products bolstered Q3 results.
- TSM anticipates continued robust demand for its advanced process technologies in Q4, with AI-related demand expected to remain strong throughout the second half of 2024.
- Revenue from server AI processors is projected to more than triple this year, contributing a mid-teen percentage to total revenue in 2024.
In terms of product breakdown, 3-nanometer technology contributed 20% of wafer revenue in Q3, while 5nm and 7nm processes accounted for 32% and 17%, respectively. Advanced technologies (7-nm and below) made up 69% of wafer revenue. By platform, high-performance computing (HPC) increased 11% sequentially to represent 51% of Q3 revenues, smartphones rose 16% to 34%, IoT surged 35% to 7%, and automotive grew 6% to 5%. Data center electronics (DCE) decreased 19% to 1%.
TSM is expanding its global manufacturing footprint, particularly in Arizona, where it has received strong commitments from U.S. customers and governments. The company plans to build three fabs in Arizona, with the first expected to begin volume production in early 2025 and the second by 2028. With 68% of 2023 revenue coming from North America, this expansion aligns with strategic goals. TSM is also expanding in Japan.
The Q3 report was notably impressive due to strong results and guidance, dispelling any concerns about waning AI demand. TSM's robust AI demand reflects a broader trend among its customers, including AMD, Amazon's AWS, Broadcom (AVGO, Financial), Intel (INTC, Financial), NVIDIA (NVDA, Financial), NXP Semiconductors (NXPI, Financial), Qualcomm (QCOM, Financial), and Sony.
While NVIDIA often captures media attention, TSM deserves similar recognition for its substantial AI-related demand and impressive operating margins, marking it as a significant player in the industry.
