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Rising demand for advanced chips powered by artificial intelligence (AI) pushed Taiwan Semiconductor Manufacturing Company (TSM, Financial) to a remarkably strong profit for the Q4 quarter. On Thursday, the world's largest contract chipmaker, TSMC, beat analyst expectations with a 57% year-over-year rise in net income to T$374.68 billion ($11.60 billion). The Advanced 3-nanometer chips contributed to nearly 39% revenue growth to T$868.46 billion for the quarter, with sales mostly responsible for that growth.
Regarding investment in the future, TSMC sees 2025 sees a big ramp-up in capital spending because it plans to invest $38 billion or $42 billion that's a lot, that being much more than the $29.8 billion spent last year. CEO C.C. Wei told analysts that spending would be split primarily between advanced process technologies, which make up more than 70% of the company's revenue and are the company's leading source of revenue. AI demand will continue to drive revenue growth in the mid-20 % range dollars up for TSMC.
Coming with caution, however, are TSMC's prospects. Soft seasonal trends in smartphone sales could mean lower sales in the first quarter of 2025 as demand continues to be fueled by AI. It is also exposed to additional risks given U.S. export restrictions on advanced chips, particularly to China after the shipment of some TSMC chips was reported to have been found in Huawei's hands.
While it faces these challenges, TSMC is nonetheless a core player in the chip world and a pointer for more general AI industry market developments.
This article first appeared on GuruFocus.