The trillion dollar club has added new members.
On October 17th, TSM released its third quarter financial report. The financial report shows that net income, gross profit margin, operating profit margin and other indicators during the period exceeded the performance expectations given by the management in the second quarter, especially with a significant increase in gross profit margin. Affected by this news, TSMC's US stock market surged by over 9% before the market opened, with a growth rate of over 13% after opening. Its stock price broke through $200, reaching a historic high, and TSMC has thus entered the "trillion dollar club", sharing the glory of the global "trillion dollar club" with Apple (AAPL), Microsoft (MSFT), Nvidia (NVDA), Alphabet (GOOG, parent company of Google), Amazon (AMZN), Saudi Aramco (2222), Berkshire Hathaway (BRK) and others.
Previously, the explosive performance of lithography machine giant ASML led to speculation in the market about "overcapacity" in global chip factories, which in turn cast doubt on the authenticity of the demand boom for artificial intelligence. TSMC's third quarter report and subsequent conference calls have greatly boosted the semiconductor sector, injecting a "shot in the arm" into the US capital market.
TSMC Chairman Wei Zhejia emphasized that "artificial intelligence is a real existence", stating that the demand for artificial intelligence has just begun, and it is expected that the business will continue to be supported by strong demand for cutting-edge process technology in the fourth quarter. In addition, he also revealed that the expected annual revenue growth has been raised to 30%.
Semiconductor 'shot in the arm'
Overall, TSMC's performance is very good.
According to the financial report, TSMC's third quarter revenue was NT $759.69 billion (US $23.5 billion), a year-on-year increase of 39%; The net profit for the quarter recorded NT $325.258 billion (US $10.1 billion), a year-on-year increase of 54.2%, all of which exceeded market expectations.
During the period, the company achieved a gross profit margin of 57.8%, an increase of 4.6 percentage points month on month and 3.5 percentage points year-on-year. This gross profit margin performance is far higher than the expected range of 53.3% -55.5% given by the management in the previous financial reporting season. The management pointed out that this is due to higher capacity utilization and more favorable exchange rates.
As the world's largest chip foundry, what is even more surprising than the financial report data and market value growth is TSMC's "significantly better than expected" performance guidance and positive boost to the semiconductor market.
During the earnings conference call, Wei Zhejia stated that in US dollar terms, it is expected that its annual revenue will increase by nearly 30%, and the expected revenue growth rate in the second quarter will slightly exceed the 20% range in US dollar terms.
Wei Zhejia also emphasized that the demand for AI is real, and the overall chip demand has stabilized and begun to improve. According to Wall Street Journal, some key customers of TSMC also said that the current demand is "crazy, just beginning" and will continue for several years.
It is expected that in the fiscal year 2024, revenue from server artificial intelligence processors will more than triple and account for 15% to 19% of total revenue. At the same time, TSMC's total revenue growth forecast for the fiscal year 2024 has been revised up from the previous 20% to 24% to 30%.
Analysts have pointed out that TSMC is a better indicator of AI demand.
AvaTrade's Chief Market Analyst Kate Leaman said, "In the short to medium term, artificial intelligence applications, data centers, and advanced chips will continue to drive strong demand... Therefore, although ASML may experience a temporary slowdown, companies such as TSMC may continue to achieve strong performance in these high growth areas
Caizhongshe found that due to different strategies for the wave of generative AI, the performance of several chip giants has also diverged.
Former blue giant Intel, due to strategic mistakes, not only missed Open AI, but the x86 architecture market is also being eroded by Qualcomm, and its wafer foundry business is far behind its competitors. Currently, it has entrusted orders for processes below 3 nanometers to TSMC foundry. Samsung Electronics has also "stepped out" of the AI wave, failing to seize opportunities in high-end storage chips such as cutting-edge process chips and HBM, and falling significantly behind TSMC in the OEM market share.
On the other hand, TSMC's customers - Nvidia, AMD, and Qualcomm - continue to maintain high-speed growth thanks to the computing power demand brought by large models.
Trillion dollars or just the beginning
Although the stock price has doubled since 2024, driven by advanced processes, TSMC's demand for high-end chips is strong, profit margins are rising, and the market share still has great potential for future growth. Therefore, TSMC's trillion dollar market value may only be the beginning of further skyrocketing stock prices.
TSMC's Senior Vice President and Chief Financial Officer, Huang Renzhao, stated that the revenue growth in the third quarter was driven by strong demand for 3nm and 5nm process technologies in the smartphone and AI related markets. Entering the fourth quarter, it will continue to be supported by strong demand for advanced technology.
According to financial report data, TSMC's advanced processes (including processes smaller than 7 nanometers) currently account for 69% of the quarter's wafer sales revenue, while mature processes (28 nanometers and above) account for approximately 31%. In advanced processes, shipments of 3-nanometer processes accounted for 20% of the company's wafer sales in the third quarter of 2024, shipments of 5-nanometer processes accounted for 32%, and shipments of 7-nanometer processes accounted for 17%.
Currently, Apple, Qualcomm, AMD, Nvidia, MediaTek, Broadcom, and others are all customers of TSMC.
On the one hand, Apple's new phones have brought significant incremental growth to TSMC, from last year's high-end models using 3nm processes to the full range of iPhone 16 equipped with 3nm chips; On the other hand, due to the company's leading technological capabilities, TSMC has undertaken the majority of AI chip increments for customers such as NVIDIA. Driven by this, even if Apple shifts some of its demand from 5nm to 3nm, the company still has enough orders to fill 5nm, so the proportion of revenue below 7nm will continue to rise.
In addition, with further stacking of advanced processes (2nm), TSMC's profits will further increase. HSBC stated that TSMC will shift towards 2nm, which will be priced 33% higher than 3nm. Coupled with higher utilization rates, this should help drive its profit margin expansion in 2025 and 2026, thereby driving profit growth.
There is news in the market that customers seem to have accepted TSMC's idea of raising prices.
Morgan Stanley analyst Charlie Chan wrote in a report: "TSMC's' hunger marketing 'strategy seems to be working. Our latest supply chain check shows that TSMC is sending a message that leading foundry supply may be tight by 2025, and if TSMC's quote is not accepted, customers may not be able to obtain sufficient capacity allocation." TSMC is expected to increase the average selling price of 3-nanometer chips by 4% by 2025; 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 without price increase.
Given TSMC's strong performance in processes and revenue, gross profit margin has become one of the focal points of current market attention. The Dolphin Investment Research Report shows that as the mass production of 3nm continues to drive up the average price of the company's products, it can significantly improve the company's gross profit margin. Based on the company's guidance of 57% -59% for the next quarter, TSMC's gross profit margin has already emerged from the trough and stabilized at around 58% since this quarter.
At present, the demand for mobile phones and PC terminals is still in a moderate recovery stage. TrendForce Consulting believes that with the continuous promotion of AI and the support of inventory decline in various application components, the revenue growth of the wafer foundry industry will return to the 20% level in 2025.