Thanks to robust demand from artificial intelligence firms, Taiwan Semiconductor Manufacturing Co (NYSE:TSM) exceeded first-quarter financial expectations.

The company’s revenue surged 16.5% to $18.87 billion, surpassing the Street consensus estimate of $18.40 billion, while net income increased by 8.9% to $6.97 billion. The stock price declined after the Q1 print.

Advanced technologies, particularly those beyond the 7-nanometer process, contributed 65% of TSMC’s total revenue. 

Notably, Apple Inc (NASDAQ:AAPL), TSMC’s largest client, has reportedly reserved the majority of TSMC’s initial 2-nanometer production capacity for developing advanced processors, which made up 25% of TSMC’s annual revenue in 2023. 

Nvidia Corp (NASDAQ:NVDA) also stands out as a critical customer, accounting for approximately 11% of TSMC’s revenue.

CFO Wendell Huang forecasted a robust second quarter for 2024, highlighting the anticipated support from solid demand for their cutting-edge 3-nanometer and 5-nanometer technologies despite the seasonal fluctuations in smartphone demand.

TSMC’s second-quarter revenue will likely range between $19.6 billion and $20.4 billion, versus the analyst consensus of $19.3 billion. Due to the AI frenzy, the company expects sales growth of up to 30%. 

For the second quarter, TSMC foresees robust demand for its cutting-edge 3 nanometer (nm) and 5nm technologies bolstering its business. However, a slowdown in smartphone demand will counter this, Reuters cites from the earnings call.

TSMC anticipates that AI servers will represent a low-teens percentage of its 2024 revenue, doubling from the previous year, and projects this contribution to exceed 20% by 2028. The company has revised its outlook for auto chip demand, forecasting a decline this year instead of the previously expected growth.

TSMC has reaffirmed its capital expenditure forecast for this year at $28 billion—$32 billion, allocating 70%- 80% of this investment to advanced technologies. The company predicts a revenue increase in the low—to mid-20% range in U.S. dollar terms for 2024. 

Analysts view TSMC’s position favorably, with Brady Wang from Counterpoint Research citing the sustained demand for advanced AI chips as a positive indicator for both immediate and long-term growth. 

TSMC stock gained 58% in the last 12 months. Investors can gain exposure to the stock via VanEck Semiconductor ETF (NASDAQ:SMH) and Vanguard FTSE Emerging Markets ETF (NYSE:VWO).

Price Action: TSM shares closed lower by 4.07% at $133.47 on the last check Thursday.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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