TLDR:
- TSMC’s Q3 profit expected to jump 40% due to strong AI chip demand
- Company plans more chip plants in Europe, focusing on AI market
- Q3 revenue beat market expectations
- TSMC shares have soared 77% this year
- Inflation remains sticky, impacting Fed rate cut expectations
Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest contract chipmaker, is poised to report a significant jump in third-quarter profits, driven by the surging demand for advanced chips used in artificial intelligence applications.
As the company prepares to release its earnings report, industry analysts and market watchers are anticipating strong results that reflect TSMC’s dominant position in the semiconductor industry.
According to a LSEG SmartEstimate drawn from 22 analysts, TSMC is expected to report a net profit of T$298.2 billion ($9.27 billion) for the quarter ended September 30, 2024. This represents a remarkable 40% increase compared to the same period last year when the company reported a net profit of T$211 billion.
The projected growth is primarily attributed to the booming demand for AI chips and the company’s ability to meet the needs of major clients such as Apple, Nvidia, AMD, and Qualcomm.
TSMC’s strong performance is reflected in its recently reported third-quarter revenue, which comfortably beat market expectations. The company’s shares listed in Taipei have seen a staggering 77% increase so far this year, outperforming the broader market’s 28% gain. This surge in stock price underscores investor confidence in TSMC’s strategic position within the AI-driven semiconductor landscape.
The company’s success comes against the backdrop of a complex economic environment. Recent inflation data has shown that price pressures remain sticky, with headline inflation rising by 2.4% in September, slightly above the anticipated 2.3%.
This has led to revised expectations regarding potential Federal Reserve rate cuts, with the market now anticipating fewer rate reductions in the near term.
Despite these macroeconomic challenges, TSMC continues to invest heavily in expanding its production capabilities. The company is spending billions on new factories overseas, including a $65 billion investment in three plants in Arizona. This global expansion strategy aims to diversify TSMC’s manufacturing base and mitigate geopolitical risks.
In Europe, TSMC is planning further expansion beyond its initial €10 billion chip fabrication plant in Dresden, Germany.
According to Taiwan’s National Science and Technology Council Minister Wu Cheng-wen, the company is already planning additional fabs in Europe, with a particular focus on the AI chip market. This move aligns with TSMC’s strategy to capture growth opportunities in emerging semiconductor technologies and markets.
TSMC’s expansion plans are not without challenges. The company faces increasing pressure to expand its presence in the United States, regardless of the outcome of the upcoming presidential election.
While this expansion may present short-term financial challenges due to higher costs, it is seen as a strategic long-term move that could strengthen TSMC’s global position.
As TSMC prepares to hold its quarterly earnings call, investors and industry observers will be keenly watching for updates on the company’s outlook for the current quarter and the full year.
Of particular interest will be any revisions to TSMC’s capital expenditure plans, which were previously set between $30 billion and $32 billion for the year.
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