Taiwan Semiconductor Manufacturing Company (TSMC), the world's largest chipmaker and a major supplier to Apple and Nvidia, reported better-than-expected revenue and profit for the first quarter, driven by strong demand for advanced chips used in artificial intelligence (AI) applications. The company also forecast a potential 30% rise in second-quarter sales, highlighting the "insatiable" demand for AI-related semiconductors.

TSMC's net revenue for the first quarter rose 16.5% from a year ago to NT$592.64 billion ($18.87 billion), surpassing the LSEG consensus estimate of NT$582.94 billion. Net income increased 8.9% from a year ago to NT$225.49 billion, beating the expected NT$213.59 billion. The company's strong performance is attributed to its technology leadership and broader customer base, which positions it well for "healthy" growth in 2024.

During the earnings call, CEO C.C. Wei emphasized the surge in demand for AI-related processors, stating, "Almost all the AI innovators are working with TSMC to address the insatiable AI-related demand for energy efficient computing power." He added that the company estimates revenue contribution from server AI processors to "more than double this year."

TSMC expects second-quarter revenue to be between $19.6 billion and $20.4 billion, supported by strong demand for its industry-leading 3-nanometer and 5-nanometer technologies, partially offset by continued smartphone seasonality. The company currently produces 3-nanometer chips and plans to commence mass production of 2-nanometer chips in 2025, with smaller nanometer sizes typically yielding more powerful and efficient chips.

The proliferation of large language models such as ChatGPT and Chinese clones has led to a surge in demand for AI chips, causing TSMC's shares to rise 56% in the past year. Brady Wang, associate director at Counterpoint Research, noted that "TSMC is well-positioned for strong performance based on key industry trends. The continued demand for advanced chips, particularly those used in AI applications, is a positive sign for both the short and long term."

TSMC's net profit margin remains one of the highest in the company's history at 40%, compared to an industry average of 14%, demonstrating its strong competitive position. Grzegorz Drozdz, market analyst at Conotoxia, attributed the high margin to an increased share of sales of 7nm and smaller chips, which have significantly higher margins.

Earlier this month, Taiwan was hit by its strongest earthquake in 25 years, but TSMC reported minimal impact on its operations. CFO Wendell Huang stated that there were no power shortages, no structural damage to fabs, and no damage to critical tools, including all extreme ultraviolet lithography (EUV) tools. Although some wafers were affected and had to be scrapped, the company expects most of the lost production to be recovered in the second quarter, with minimal impact on revenue.

The U.S. government recently granted TSMC's Arizona subsidiary preliminary approval for funding worth up to $6.6 billion to build the world's most advanced semiconductors, with an additional $5 billion in proposed loans. This development, along with TSMC's ongoing expansion plans in the United States, Japan, and Germany, underscores the company's commitment to maintaining its technological edge and meeting the growing global demand for advanced chips.