China Fund News reporter Yao Bo
Currently, there is a serious imbalance between supply and demand in the AI chip industry chain, which significantly benefits upstream manufacturers. As a leading supplier of chip production capacity, TSMC's stock price has risen sharply, with a year-on-year increase of 76%, and its market value once exceeded $1 trillion.
AI craze drives performance beyond expectations
Recently, TSMC has shown impressive performance. On July 11th, TSMC's stock price reached 1080 New Taiwan Dollars, with a market value of 28 trillion New Taiwan Dollars (approximately 861 billion US dollars), making TSMC the highest valued listed company in Asia. Since the beginning of this year, TSMC's stock price has risen by a cumulative 76%.
On July 8th, TSMC's US stock price opened up 4.8%, with a market value exceeding $1 trillion. TSMC's American Depositary Receipts (ADRs) hit a new high of $193.47.
TSMC, as a leading global chip foundry manufacturer, manufactures data center server-side AI chips for companies such as NVIDIA and AMD. These chips are regarded as the key hardware foundation supporting generative AI technologies such as ChatGPT.
The latest sales data shows that in June of this year, TSMC achieved a revenue of NT $207.9 billion, with Q2 sales reaching NT $673.5 billion, a year-on-year increase of 40%, far exceeding market expectations. This strong performance not only boosted TSMC's stock price, but also raised market expectations for the upcoming second quarter financial report.
Macquarie Securities pointed out that most customers are willing to accept higher OEM prices in exchange for reliable supply guarantees. This trend will further drive up TSMC's gross profit margin. The institution predicts that TSMC's gross profit margin will reach 55.1% in 2025 and 59.3% in 2026.
Daniel Tan, portfolio manager at Grasshopper Asset Management in Singapore, stated that the market's optimism towards AI related demand and TSMC's potential pricing power continues to grow. TSMC's leading position in the field of chip foundry will further enhance its profitability. In an industry environment where supply remains tight, TSMC's market value is expected to further rise as customers compete for capacity allocation.
Ruisui Securities analyst Kevin Wang said that the acceleration of profit growth will drive TSMC's valuation re rating. He believes that the improvement in profit margins may drive a 25% or even 30% increase in company profits, so the valuation can be expanded at least 25 times. Since July, he has raised TSMC's target price by 17%.
Controversy over Input Output of Artificial Intelligence
Although the shortage of chip supply may limit the rapid development of AI technology, there are significant differences in the industry regarding whether such a huge investment in AI can bring corresponding returns.
MIT professor Daron Acemoglu holds a relatively pessimistic attitude towards the economic impact of AI. He predicts that in the next 10 years, the application of AI technology will only increase productivity by 0.5% and GDP growth by 1% in the United States. From the current focus and architecture of generative AI technology, true revolutionary changes are unlikely to occur soon, and the potential for change in the next 10 years is limited.
Jim Covello, Global Head of Equity Research at Goldman Sachs, is also skeptical about the cost and transformative potential of AI technology. He pointed out that developing and operating AI technology incurs huge costs. AI applications must solve extremely complex and important problems in order for businesses to receive appropriate returns. However, current AI technology is far from reaching the level that can be used for such basic tasks, making it difficult to achieve cognitive reasoning that fundamentally enhances or replaces human interaction.
In contrast, Joseph Briggs, Senior Global Economist at Goldman Sachs, is much more optimistic. He estimates that the next generation of AI technology can automate 25% of work tasks and increase productivity in the United States by 9% and cumulative GDP growth rate by 6.1% over the next 10 years.
The development of AI technology faces challenges such as chip supply shortages, and its long-term economic benefits are still controversial, but the performance of related companies, especially chip manufacturers, in the stock market remains strong. Ryan Hammond, Senior Equity Strategist at Goldman Sachs in the United States, pointed out that there is still room for development in AI themes in the stock market, and it is expected that continued investment in AI themes will drive related companies to achieve excellent performance.
As a leader in the AI chip field, Nvidia's stock price has risen by over 700% since the beginning of 2023, making it the largest stock in the S&P 500 index by market capitalization. TSMC has also benefited from the increasing demand for AI chips recently.
Christian Mueller Glissmann, Senior Multi Asset Strategist at Goldman Sachs, reminds that for the S&P 500 index to achieve above average returns over the next decade, a highly AI friendly scenario is needed, and investors need to be cautious when betting on AI stocks.