TSMC beats market expectations. AI development is accelerating!

17.10.2024 15:16|Analyst Team, Conotoxia Ltd.

Taiwan Semiconductor (TSMC), the world's largest semiconductor manufacturer, controls 62 per cent of the Market and more than 90 per cent of production of advanced chips of 7nm and smaller. It is also a major supplier to AI giants such as Apple, Nvidia and AMD. These chips are key to modern technology, especially in the development of artificial intelligence. The company published its Q3 financial results, which exceeded the expectations of analysts and the company itself. Let's take a closer look at the conclusions of this report.

Table of contents:

  1. AI development accelerates
  2. Tough situation for TSMC's competitors

AI development accelerates

TSMC, with its strong position, reported a 39 per cent year-on-year increase in sales and a 54.2 per cent year-on-year increase in net profit. The main driver of this growth was the development of the artificial intelligence and smartphone sectors, which require more specialised chips sold at higher margins. This increased the operating profit margin to 47.8 per cent from 41.5 per cent a year earlier. The company maintains low debt levels - debt represents only 16 per cent of assets - and uses capital efficiently, achieving a 33.4 per cent return on equity (ROE).

TSMC sales graph

Source: TSMC quarterly report

TSMC's Q3 revenue increased by 12.8 per cent q/q, driven by demand for smartphones and AI technologies, especially 3 nm and 5 nm. 3nm technologies accounted for 20 per cent of revenue, 5nm for 32 per cent and 7nm for 17 per cent. Advanced technologies (7nm and below) generated 69 per cent of revenue. Data centres (HPC) and smartphones accounted for 51 per cent and 34 per cent of revenue. Geographically, 71 per cent of revenue came from North America and 11 per cent from China. Here it is also worth mentioning that China's growth in AI technology is significantly blocked by the US. This is exemplified by the latest quarterly report from the manufacturer of lithography machines, which are essential in the ASML semiconductor manufacturing process. China has a sales share of as much as 47 per cent in this segment. However, due to US export restrictions on advanced technology, this share is set to fall to 20 per cent in 2025. This news has triggered a sell-off in the Dutch manufacturer's shares, which have already fallen by 38 per cent from their peaks.

ASML chart

Source: Conotoxia MT5, ASML-NL, Daily

Tough situation for TSMC's competitors

At present, TSMC appears to be unrivalled in the production of the most advanced chips (7 nm and below). So far, concerns about increasing competition have mainly come from China and Intel. However, China's technology constraints and Intel's severe financial problems mean that TSMC remains even more dominant, giving it a technological edge over its competitors for the next 5 years or so. For this reason, TSMC shares are up almost 10 per cent in pre-market trading.

TSMC chart

Source: Tradingview

 

Grzegorz Dróżdż, CIIA, Market Analyst of Conotoxia Ltd. (Conotoxia investment service)

The above trade publication does not constitute an investment recommendation or information recommending or suggesting an investment strategy within the meaning of Regulation (EU) No. 596/2014 of April 16, 2014. It has been prepared for informational purposes and should not form the basis for investment decisions. Neither the author of the publication nor Conotoxia Ltd. shall be liable for investment decisions made on the basis of the information contained herein. Copying or reproducing this publication without written permission from Conotoxia Ltd. is prohibited. Past performance is not a reliable indicator of future results.

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Trading on CFDs is provided by Conotoxia Ltd. (CySEC no.336/17), which has the right to use the Conotoxia trademark.

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76.23% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76.23% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Trading on CFDs is provided by Conotoxia Ltd. (CySEC no.336/17), which has the right to use the Conotoxia trademark.