The semiconductor industry has enjoyed a significant boost due to the growing demand for artificial intelligence (AI) applications. This is not surprising, as training AI models in data centers would not be possible without the processing power of semiconductors, which explains why companies in this sector have seen impressive growth over the past few years. of the last year.
Nvidia, for example, has more than tripled over the past year, thanks to meteoric growth in revenue and profits thanks to surging demand for the company’s graphics cards. However, Nvidia’s rapid growth would not have been possible without its foundry partner. Semiconductor manufacturing in Taiwan (NYSE:TSM)popularly known as TSMC.
Although Nvidia designs the chips, it outsources manufacturing to TSMC. So it was no surprise to see TSMC deliver strong results on April 18 for the first quarter. Let’s take a closer look at TSMC’s numbers before understanding why this is semiconductor stock is a worthwhile buy right now.
TSMC’s Latest Results Tell Us AI Is Poised to Drive Stronger Growth
TSMC’s first-quarter revenue rose 13% year over year to $18.9 billion, while profit rose 5% to $1.38 per share. The numbers beat analysts’ expectations and revenue exceeded the company’s previous forecasts.
Management’s outlook for the second quarter was the icing on the cake as TSMC forecasts revenue of $20 billion in the middle of its forecast range, which is good for year-over-year growth about 28%. This is a nice acceleration from the previous quarter, and the outlook is also above the consensus estimate of $19.1 billion.
More importantly, TSMC’s revenue declined 14% year-over-year in the second quarter of 2023, when the semiconductor market was slowing due to oversupply. However, the advent of AI has been a game-changer for TSMC, as demand for chips made using the company’s advanced process nodes has increased significantly.
TSMC earned 37% of its revenue last quarter from the sale of chips made using a 5 nanometer (nm) manufacturing process, up from 31% in the same period last year. Additionally, chips made on a 3nm node contributed 9% to its revenue last quarter, up from nothing a year ago. These advanced process nodes provide more computing power and greater energy efficiency for AI chips produced by Nvidia, AMDAnd Intel. As a result, they are expected to continue to represent a larger share of the company’s revenue.
Intel, for example, recently unveiled the Gaudi 3 accelerator, manufactured on TSMC’s 5nm process node. Meanwhile, Nvidia’s next-generation Blackwell AI chips are expected to be manufactured using the company’s 4nm process node. TSMC is also seeing strong demand for its 3nm chips thanks to Apple. This is the backdrop to the “insatiable AI demand” mentioned by TSMC in its latest earnings call.
Buying the stock now could be a smart move
Demand for AI chips is here to stay, with the AI semiconductor market expected to grow at an impressive annual rate of 38% through 2030….
