Global AI Surge Fuels TSMC’s Return to Profit Growth – Stock Doubles In 18 months

Taiwan Semiconductor Manufacturing Co.' (TSMC) shares have added 1.01% after the leading powerhouse in the chipmaking sector reported a notable 9% climb in its net income, reaching NT$225.49 billion ($7 billion) in the initial quarter of the year. This marks the company's first upswing in profit after a year-long period of stagnant growth.

This rebound surpassed analyst projections, signifying a stronger-than-expected resurgence for the semiconductor giant. TSMC, the pivotal manufacturer for industry stalwarts such as Apple Inc. and Nvidia, is riding the wave of burgeoning demand for chips tailored to artificial intelligence (AI) applications, showing its quickest pace in sales growth since 2022.

Despite accounting for a significant share of TSMC's revenue (roughly a quarter in 2023) Apple's product sales experienced a hit early in the year due to faltering demand for iPhones in China. To mitigate this, TSMC has managed to leverage its diversified client portfolio and advanced manufacturing prowess to counterbalance localised setbacks.

In a demonstration of its expansive ambition and market confidence, TSMC's stock has more than doubled from the Oct 2022 lows, adding in excess of NT$10Trillion to its' market cap. This impressive increment is backed by market optimism about the company's pivotal role in the ongoing AI boom that is sweeping across the globe.

Looking ahead, TSMC has articulated an aggressive capital investment plan for 2024, with an optimistic view that the company's revenue is projected to expand by at least 20% within the year. This growth forecast arrives amid an overall recovery in the semiconductor industry, which had previously faced headwinds from economic slowdowns and trade uncertainties.

Particularly striking is TSMC's AI revenue, which is reportedly mushrooming at a rate of 50% annually, underlining the rapidly growing demand for AI-optimised semiconductor solutions that form the backbone of a variety of emerging technologies.

Nevertheless, the company’s meteoric rise and optimistic projections aren’t without their own shadows of doubt, with some investors raising flags about the long-term viability of the current level of demand for AI chips. Furthermore, the geopolitical environment casts an additional layer of unpredictability, especially given the ongoing tensions between China and Taiwan which have the potential to disrupt the semiconductor supply chain.

Complicating the narrative further, ASML Holding NV, a key equipment supplier essential to TSMC's operations, disclosed a significant 22% shortfall in its first-quarter bookings. This points to potential challenges upstream in the semiconductor fabrication ecosystem, which could ripple through to TSMC in the foreseeable future.