Taiwan Semiconductor Manufacturing Co. (TSMC), the world's largest contract chipmaker, reported a significant 30% rise in its May sales, reaching NT$229.6 billion ($7.1 billion). This robust performance is primarily driven by the soaring demand for artificial intelligence (AI) chips and a recovery in some consumer electronics sectors.
The Hsinchu-based company has positioned itself at the forefront of the global race to develop AI services, producing advanced semiconductors for major tech firms such as Nvidia Corp., which in turn supplies these chips to Microsoft Corp. and OpenAI. Additionally, a resurgence in worldwide smartphone sales during the first quarter of the year has fueled expectations for strong orders of mobile chips, further boosting TSMC's sales.
TSMC's exclusive manufacturing of Nvidia's most advanced AI accelerators has been a key factor in maintaining high margins. The company also fabricates semiconductors for other tech giants like Apple Inc. and Advanced Micro Devices Inc. (AMD), Nvidia's closest competitor. This diversified client base has helped TSMC navigate the volatile tech market effectively.
C.C. Wei, TSMC's Chairman and Chief Executive Officer, reiterated this week that the development of AI is expected to drive a sector-wide recovery this year. This optimistic outlook is supported by recent sales data, which show that TSMC's second-quarter sales are tracking ahead of expectations.
Bernstein analyst Mark Li noted in a client report that if June follows the average seasonality of the past eight years, TSMC's Q2 revenue could come in 12% above both the guidance midpoint and consensus. Li, who rates TSMC stock as outperform, highlighted the company's robust performance in AI chip production and a cyclical recovery in demand for personal computers as key growth drivers.
In premarket trading, TSMC's stock rose 0.4% to $162.70. The stock has been on an upward trajectory, breaking out of a double-bottom base at a buy point of $148.43 on May 10, according to IBD MarketSurge charts. TSMC is listed on two IBD lists: Leaderboard and Tech Leaders.
TSMC's resilience in the face of global economic challenges is noteworthy. The company's May sales dipped 2.7% from April, but its January through May period sales are up 27% year-over-year. This strong performance is a testament to TSMC's ability to adapt to shifting market dynamics and leverage its technological prowess.
The company's production of AI chips for Nvidia has been a standout success, with Nvidia's AI accelerators in high demand as industries across the globe ramp up their AI capabilities. TSMC's role in this supply chain is critical, as these chips are integral to the development of advanced AI systems and applications.
Meanwhile, TSMC has also benefited from a recovery in the consumer electronics market, particularly in the smartphone segment. Production for chips used in Apple's iPhone has remained resilient, and sales of high-end Android smartphones have exceeded expectations. This recovery has provided an additional boost to TSMC's sales, complementing the strong demand for AI chips.
Despite the impressive sales figures, TSMC faces ongoing challenges, including geopolitical tensions and supply chain disruptions. However, the company's strategic positioning and robust technological capabilities have enabled it to maintain a competitive edge in the global semiconductor market.
As TSMC continues to navigate these challenges, its focus on innovation and strategic partnerships will be crucial in sustaining its growth momentum. The company's ability to meet the growing demand for AI chips and capitalize on the recovery in consumer electronics will be key determinants of its future performance.
