Strong AI Chip Demand Propels Key Apple, Nvidia Supplier Past Q1 Expectations

Chipmaking giant Taiwan Semiconductor Manufacturing Company TSM on Thursday reported first-quarter results that beat market expectations, thanks to strong demand from companies involved in artificial intelligence.

What Happened:

  • TSMC’s revenue rose 16.5% to NT$592.64 billion ($18.87 billion), exceeding the consensus estimate of $18.40 billion.
  • Net income jumped 8.9% to NT$225.49 billion ($6.97 billion), exceeding the expected NT$213.59 billion.
  • Diluted earnings per share (EPS) came at $1.38 compared to expectations of $1.32.

However, TSMC experienced a slight decline from the fourth quarter of 2023, with revenue and net income decreasing by 5.3% and 5.5%, respectively.

The company reported a gross margin of 53.1%, an operating margin of 42.0%, and a net profit margin of 38.0%.

What Drove The Beat?

Advanced technologies, including 7-nanometer processes and more advanced ones, accounted for 65% of TSMC’s total revenue. Within this, 3-nanometer technology comprised 9%, 5-nanometer contributed 37%, and 7-nanometer made up 19%.

Apple’s Dominating Role:

Apple Inc. has reportedly secured most of TSMC’s initial 2-nanometer production capacity, likely to develop advanced processors. Analysts believe Apple is TSMC’s biggest buyer, contributing 25% of TSMC’s yearly income in 2023, totaling $17.5 billion.

Other Key Customers:

Another significant customer is likely Nvidia, contributing 11% of TSMC’s revenue, amounting to around $7.73 billion. While TSMC doesn’t reveal all its clients, analysts believe companies like AMD, Broadcom, and Qualcomm are among them.

Why It Matters:

TSMC’s robust financial performance is a positive sign for the semiconductor sector, which is experiencing a surge in demand due to the growing use of AI applications such as OpenAI‘s ChatGPT and Microsoft‘s Copilot.

Speculation about TSMC’s performance was high after a disappointing earnings report from rival ASML Holding N.V., which initially led to a dip in TSMC’s shares. Additionally, concerns arose regarding a recent earthquake in Taiwan. However, the company quickly resumed operations, assuaging these concerns.

Price Action: TSM closed down 0.55% at $139.03 on Wednesday, but was up 0.16% in after-hours trading, according to data from Benzinga Pro.

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Posted In: EarningsEarnings BeatsEquitiesNewsTop StoriesMarketsTechGeneralAI chip marketAppleNVIDIAPooja Rajkumarisemiconductor stocksStories That MatterTaiwan Semiconductor Manufacturing Co.
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