TSMC’s AI-driven profits Soar as Chip Supply Struggles to Meet Demand

TSMC’s second-quarter profit beats expectations as the AI chip boom continues, with robust demand for advanced chips used in AI applications stretching chip supplies.

Strong financial performance driven by AI demand: TSMC reported impressive second-quarter results, surpassing revenue and profit expectations:

• Revenue reached NT$673.51 billion ($20.82 billion), up 40.1% from a year ago, beating estimates of NT$657.58 billion.
• Net income increased 36.3% year-over-year to NT$247.85 billion, exceeding the LSEG SmartEstimate of NT$238.8 billion.

Tight supply and capacity expansion: The explosive demand for AI has led to a supply crunch, with TSMC working hard to meet customer needs:

• CEO C.C. Wei emphasized the difficulty in reaching a supply-demand balance, warning that tight supply could persist through 2025.
• To address the strong demand for 3-nanometer chips, TSMC is considering converting more “N5” technology into “N3” technology.
• The company narrowed its capital budget range for 2024 to between $30 billion and $32 billion, with 70% to 80% allocated to advanced technologies.

Positive outlook and market expectations: TSMC expects the strong growth momentum to continue:

• The third quarter is projected to be supported by robust smartphone and AI-related demand, with revenue forecast between $22.4 billion and $23.2 billion.
• Analysts anticipate TSMC will raise its 2024 revenue growth target from “low- to mid-20s” to “mid- to high-20s.”
• TSMC’s Taiwan-listed shares have surged nearly 70% year-to-date, reflecting investor confidence in the company’s prospects.

Analyzing deeper: While TSMC’s strong performance and optimistic outlook are encouraging, the persistent supply constraints and the company’s efforts to expand capacity highlight the challenges in meeting the surging demand for advanced chips. As the AI boom continues to drive chip consumption, it remains to be seen how TSMC and other industry players will navigate the supply-demand dynamics and maintain their competitive edge in the rapidly evolving semiconductor landscape.