TSMC, the world's largest contract chipmaker, has revised its full-year revenue forecast upwards, driven by soaring demand for artificial intelligence (AI) chips. However, the company firmly declined the idea of a joint venture factory in the United States, maintaining its current expansion strategy.

Taiwan Semiconductor Manufacturing Co Ltd (TSMC), a critical supplier for tech giants like Apple and Nvidia, has benefitted significantly from the global surge in AI demand, which has helped offset a decline in pandemic-driven electronics sales. The company's second-quarter earnings report revealed a net profit that exceeded market expectations, prompting an increase in its 2024 revenue forecast. TSMC now anticipates growth in the "slight to above mid-20%" range in U.S. dollar terms, up from the previous "low to mid-20%" range.

"AI is so hot; right now everybody, all my customers, want to put AI functionality into their devices," stated Chairman and CEO C.C. Wei during an earnings conference. The company's U.S.-listed shares rose 3.3% in pre-market trading following the announcement, although its Taiwan-listed shares had closed down 2.4% earlier in the day. The decline in Taiwan shares was partly attributed to comments by U.S. Republican presidential candidate Donald Trump, who criticized Taiwan's dominance in the chip industry and suggested the island should compensate the U.S. for its defense.

Rejection of U.S. Joint Venture

Despite the political rhetoric, TSMC remains steadfast in its expansion plans, which include significant investments in the United States. The company is spending $65 billion on three plants in Arizona and has additional projects in Japan and Germany. When asked about the possibility of a joint venture in the U.S., Wei was clear: "So far we did not change any of our original plans of expansion of our overseas fabs. We continue to expand in Arizona, in Kumamoto, and maybe in future in Europe. No change in our strategy. We continue in our current practice."

Wei also highlighted the company's efforts to meet the burgeoning demand for chips, stating, "We are working very, very hard to get enough capacity to support my customers from now all the way to next year, to 2026." CFO Wendell Huang noted that supply for leading-edge nodes, including its 3nm and 5nm technologies, would remain very tight next year.

Strong Financial Performance

For the current quarter, TSMC projected revenue growth of up to 34%, with expected earnings ranging from $22.4 billion to $23.2 billion. The company also adjusted its capital expenditure plans for the year to between $30 billion and $32 billion, up from the previous forecast of $28 billion to $32 billion. This comes after a robust performance in the second quarter, where net profit soared to T$247.8 billion ($7.60 billion) from T$181.8 billion a year earlier, surpassing the T$238.8 billion estimate.

"Moving into the third quarter of 2024, we expect our business to be supported by strong smartphone and AI-related demand for our leading-edge process technologies," said Huang. Second-quarter revenue rose by 33% to $20.8 billion, slightly exceeding the company's previous forecast.

Industry Impact and Future Outlook

TSMC's impressive financial results underscore the impact of AI demand on the semiconductor industry. The company's close partnerships with Nvidia and Apple have positioned it well to capitalize on this trend. However, the industry is also facing challenges, including potential trade restrictions. Global chip stocks, including TSMC's, experienced a downturn following news of the Biden administration's consideration of tougher trade restrictions on advanced chipmaking technology to China.

In response to these challenges, TSMC has reaffirmed its commitment to advanced technologies. The company continues to invest heavily in its future, with significant capital allocated towards maintaining its competitive edge in the market. Despite the external pressures, TSMC remains optimistic about its growth trajectory, driven by the relentless demand for AI chips and other advanced technologies.