Taiwan Semiconductor Manufacturing Company (TSMC), the world’s biggest contract chipmaker, reported a 77.4% jump in second-quarter profit, the company announced on Thursday. The strong results were better than what analysts had expected, showing that demand for AI chips remains very strong.
TSMC reported revenue of NT$1.27 trillion ($39.45 billion) during the second quarter. This was the fifth straight quarter in which TSMC posted a record-high profit. Profit also increased 23.4% compared with the previous quarter. Looking ahead, TSMC expects third-quarter revenue to be between $44.6 billion and $45.8 billion, the company said. The company also expects its operating profit margin to stay between 56% and 58% during the third quarter.
$100 billion Arizona investment
TSMC Chairman C.C. Wei said that demand for AI-related chips continues to be extremely strong, according to the company’s earnings call. Wei explained why the company is spending $100 billion in Arizona. He said, “This is to build several or more semiconductor logical wafer fab for two nanometer MP (mass production) technologies, as well as advanced packaging fabs to support the strong multi-year demand from our leading U.S. customers”, according to CNBC.
TSMC also raised its capital spending budget for this year to between $60 billion and $64 billion, Chief Financial Officer Wendell Huang said. Huang said the higher spending will help the company expand production to support customer demand, according to CNBC. The company’s revenue grew 36% from NT$933.79 billion a year earlier to NT$1.27 trillion.
Advanced chip technologies, including 7-nanometer and smaller chips, made up 77% of TSMC’s total wafer revenue, the company said. Among these advanced chips, 5-nanometer technology contributed 33% of second-quarter revenue, while 3-nanometer technology contributed 30%, CFO Wendell Huang said.
TSMC said its high-performance computing business, which includes AI chips, made up 66% of its platform revenue, according to the company. Smartphones accounted for 22% of platform revenue, while the Internet of Things (IoT) contributed 5%. TSMC manufactures chips for major technology companies including Nvidia, Apple and Broadcom, according to CNBC.
Also read: Why is Morgan Stanley stock falling today despite record earnings and revenue beat?
Why did TSM stock fall despite such strong earnings?
Even though TSMC reported record earnings, its U.S.-listed shares fell more than 4% in premarket trading. Investors were not disappointed with the earnings themselves. Instead, they were worried about whether the company could continue delivering such exceptional growth.
The market had already expected a very strong AI-driven quarter, so the impressive earnings were already reflected in the stock price. Once the results were released, investors shifted their attention from current profits to future challenges and spending, according to INDmoney. One major concern was TSMC’s massive investment plans, including the additional $100 billion for Arizona, according to INDmoney.
Investors are now watching how much cash the company will need to build these expensive semiconductor factories. While these factories could help TSMC grow in the future, they will also require huge spending over the coming years, according to INDmoney. Investors are questioning whether future profits will be enough to justify both the company’s high valuation and its rising investment costs. In simple words, the company delivered excellent financial results, but investors wanted even stronger signs that future growth would continue at the same pace.
What analysts are saying
SemiAnalysis analyst Sravan Kundojjala said TSMC still has strong pricing power. He said, “Net, they have far more pricing power than they are currently exercising”, according to CNBC. Kundojjala said TSMC is increasing prices carefully instead of aggressively. He believes the company wants to protect its healthy profit margins without putting too much pressure on customers.
The analyst also warned that the AI boom is creating challenges for some of TSMC’s other businesses. He said rising memory prices and tight supply have hurt consumer electronics and other price-sensitive markets outside AI.
TSMC continues to benefit from the global AI boom, posting record profits, strong revenue growth and higher future forecasts. However, the company’s stock fell because investors are now focusing on future expectations, expensive expansion plans and whether TSMC can continue growing fast enough to justify its premium valuation, according to INDmoney.
Therefore, TSMC’s business remains very strong, but the stock market is looking beyond today’s profits and judging the company’s long-term growth and spending plans.
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