This wave of AI has not only elevated NVIDIA to fame, but also sent integrated circuit foundry giant TSMC to a trillion dollar club.
On July 8th US time, during US stock trading hours, TSMC's ADR rose 1.4% to close at $186.63, with a maximum intraday increase of 4.8%. If calculated based on ADR, TSMC's market value once exceeded the $1 trillion mark, becoming the eighth largest company in the world by market value. On July 9th, Taiwan stock TSMC (2330. TW) rose 0.48% to close at NT $1040, setting a new closing high.
The market value of the top 12 companies. Source: companiesmarketcap.com
As a global high-end chip foundry, TSMC has almost fully acquired high-end chips, especially AI chip foundry, becoming a crucial player in the AI supply chain. Combined with the tight production capacity of high-end chips and the expectation of price increases, these optimistic expectations have driven TSMC's stock price to continuously reach new highs. Since the beginning of this year, TSMC's US stock market has risen by 80%.
High end chip production capacity becomes a scarce resource
Although global chip foundry has not yet emerged from its decline, the demand for high-end chip foundry is quite tight, and TSMC almost monopolizes high-end chip foundry resources, making it the best choice for major technology manufacturers.
At present, Apple, Qualcomm, AMD, Nvidia, MediaTek, Broadcom, and others are all TSMC's customers. Among them, Apple is TSMC's largest customer, and Nvidia is expected to become TSMC's second largest customer this year. These giants have all handed over smartphone chips and AI chips to TSMC for contract manufacturing.
At present, TSMC is advancing the commercialization of advanced processes to 3 nanometers and actively promoting the commercialization of 2 nanometers. After Apple took the lead in adopting 3-nanometer chips last year, it is expected that more manufacturers will adopt 3-nanometer chips this year, also known as the 3-nanometer popularization year.
It is reported that the seven global technology giants Nvidia, AMD, Intel, Qualcomm, MediaTek, Apple, and Google will all adopt TSMC's 3-nanometer process technology one after another. Among them, Qualcomm's Snapdragon 8 Gen 4, MediaTek's Dimensity 9400, and Apple's A18 and M4 series chips will all be produced based on the N3 family.
Previously, Taiwanese media reported that the four major manufacturers, Apple, Qualcomm, Nvidia, and AMD, have heavily contracted TSMC's 3-nanometer process production capacity, with orders even scheduled until 2026.
In the first quarter of 2024, TSMC's shipments of 3 nanometer, 5 nanometer, and 7 nanometer processes accounted for 9%, 37%, and 19% of total revenue, respectively, and their combined sales accounted for 65% of the total revenue. This demonstrates the important position of advanced processes (7nm and below) in TSMC's revenue structure. As the industry advances the popularization of 3-nanometer chips, TSMC is the main beneficiary, and its revenue from advanced 3-nanometer process chips will continue to increase.
Customer agrees to price increase, securities firm raises TSMC's performance expectations
TSMC holds the scarce resources of high-end chips and has the initiative to raise prices.
Since the beginning of this year, there have been multiple reports that TSMC intends to increase the price of advanced process chips. Now, it seems that customers have accepted TSMC's idea of raising prices.
Morgan Stanley analyst Charlie Chan et al. wrote in a report, "TSMC's' hunger marketing 'strategy seems to be working. Our latest supply chain review shows that TSMC is conveying a message that leading foundry supply in 2025 may be tight, and if TSMC's value is not accepted, customers may not be able to obtain sufficient capacity allocation."
Da Mo predicts that by 2025, TSMC will increase the average selling price of 3-nanometer chips by 4%; The average selling price of 4-nanometer and 5-nanometer chips will increase by 11%; The production capacity of mature process nodes (16 nanometers and above) is sufficient and there will be no price increase. Previously, the market expected a price reduction.
Previously, it was believed that except for companies with ultra-high gross margins such as NVIDIA, they could accept a 10% increase in TSMC's OEM prices, while consumer electronics companies found it difficult to accept TSMC's price increase due to weak market demand. But obviously, for various reasons, customers ultimately accepted TSMC's price increase.
Taiwanese media quoted Diamond Hill fund manager Krishna Mohanraj as saying that TSMC is like a toll station for most chip manufacturing in the world, and the bigger question is whether TSMC wants to further leverage its strong market position and strive to raise prices.
According to a report from Macquarie Securities, most of TSMC's customers have agreed to raise contract manufacturing prices in exchange for reliable supply.
At the Taipei Computer Show held in June this year, NVIDIA CEO Huang Renxun talked about TSMC at an investor luncheon, stating that considering TSMC's contribution to the world and the technology industry, the financial report shows that they are "wronged". When Morgan Stanley asked him how he viewed TSMC's plan to raise prices for its products and services, Huang Renxun did not hesitate to support it and said that Nvidia's previous prices were "too low".
However, after announcing its artificial intelligence solution, the outside world is actively bullish on the iPhone shipment performance released this autumn. The outside world also immediately changed their view on TSMC's price increase.
JPMorgan Chase pointed out in a report that due to the expected increase in iPhone shipments, TSMC's 3-nanometer process will operate at a utilization rate of 110-115% in the second half of this year, while the utilization rate of the 4/5-nanometer process is also close to 100%.
Previously, regarding rumors of price hikes from the outside world, TSMC stated in response to inquiries from a reporter from Pengpai News that the company does not comment on price issues. Emphasize that the company's pricing strategy is always strategy oriented, not opportunity oriented, and will continue to work closely with customers to provide value.
On July 7th, Morgan Stanley raised TSMC's target price by about 9% and expects the chip manufacturer to raise its full year sales forecast in next week's financial report. Analysts believe that given TSMC's strong bargaining power, it has the ability to raise wafer prices.
TSMC's combined revenue in May was NT $229.6 billion, a year-on-year increase of 30.1%, reaching a new historical high. The main driving factors were the sustained strong demand for AI and the improvement in demand for ordinary servers. The outside world is optimistic about TSMC's opportunities for the peak electronic sales season in the third quarter.
In addition, securities firms such as Nomura Holdings and Mizuho Securities are optimistic about TSMC's upcoming Q2 performance. TSMC will announce its second quarter results on July 18th.
According to market analysts' general expectations, the world's most advanced chip manufacturer's reported revenue for the second quarter will increase by 36% year-on-year, the fastest growth rate since the fourth quarter of 2022.
TSMC CEO Wei Zhejia believes that 2024 is a year for the industry to return to healthy growth, and the semiconductor industry's prosperity will bottom out in the second quarter and recover in the second half of the year. The output value of the semiconductor industry may decrease for the whole year of 2024, and TSMC is expected to achieve a slight growth.