TSMC Posts Record Profits Driven by AI Chip Demand, but Trump Comments Cast Shadow
Taiwan Semiconductor Manufacturing Company (TSMC), the world’s leading chipmaker, reported a 36.3 percent jump in net income year-on-year for the second quarter of 2024. The company’s strong performance was fueled by soaring demand for artificial intelligence (AI) chips, which are increasingly used in smartphones, high-performance computing, and generative AI applications. However, recent comments from former US President Donald Trump regarding Taiwan’s defense spending have cast a shadow over the company’s future, causing its stock price to plummet.
Key Takeaways:
- TSMC’s Q2 net income surged by 36.3% year-on-year, reaching a record high.
- The company’s revenue growth was driven by strong demand for its industry-leading 3nm and 5nm technologies, primarily for AI applications.
- TSMC expects continued growth in the AI chip market and plans to leverage this demand by expanding its manufacturing capacity overseas, including new factories in the US and Japan.
- Trump’s comments on Taiwan’s defense burden have sparked concerns among investors, leading to a significant drop in TSMC’s stock price.
- The Biden administration is considering stricter curbs on companies allowing China access to advanced chip technologies, further adding to the uncertainty surrounding the global semiconductor market.
TSMC Rides AI Wave to Record Profits
TSMC reported consolidated revenue of 673.51 billion New Taiwan dollars (approximately US$20.82 billion) for Q2 2024, representing a 40.1 percent increase year-on-year. This impressive growth was mainly driven by the company’s leading position in the advanced chip market, particularly in the 3nm and 5nm nodes. These cutting-edge technologies are highly sought after for their performance and power efficiency, making them ideal for AI applications.
"Our business in the second quarter was supported by strong demand for our industry-leading 3nm and 5nm technologies, partially offset by continued smartphone seasonality," said TSMC Senior Vice President and CFO Wendell Huang.
Looking ahead, TSMC remains optimistic about the AI chip market’s continued growth. Huang stated that the company plans to capitalize on this trend by focusing on key AI-related applications, including smartphones, high-performance computing, and generative AI. To meet this growing demand, TSMC is strategically expanding its manufacturing capacity beyond its Taiwanese headquarters. This includes building three new factories in the US and one in Japan. The Japanese plant opened earlier this year, while the US facilities are still under construction.
Trump’s Comments Cast a Shadow over TSMC’s Future
However, the positive outlook for TSMC was dampened by comments made by former US President Donald Trump, who suggested that Taiwan should pay the US for its defense. This statement, made in mid-July 2024, sparked concern among investors, who fear a potential increase in tensions between the US and China over Taiwan.
Trump’s comments further exacerbated existing concerns about the potential for heightened geopolitical risks surrounding Taiwan’s semiconductor industry. The island nation is home to over 90 percent of the world’s most advanced chip production, primarily through TSMC.
TSMC shares plummeted in the aftermath of Trump’s remarks. After closing at US$186.14 on Tuesday, July 16, the stock fell to as low as US$171.16 on Wednesday, July 17. The decline continued further on Thursday, July 18, hitting a low of US$166.14 before closing at US$171.81.
Other major semiconductor companies, including Qualcomm, Intel, and Nvidia, also experienced significant share price drops in the wake of Trump’s comments. This collective decline reflects the broader market anxiety surrounding the potential impact of heightened political tensions on the global semiconductor supply chain.
Uncertainty Grows Around Global Semiconductor Landscape
Adding to the uncertainty surrounding TSMC, the Biden administration is considering imposing stricter curbs on companies that allow China access to advanced chip technology. This move, if implemented, could further restrict Taiwan’s semiconductor exports to China, leading to potential economic ramifications for both sides.
TSMC CEO C.C. Wei addressed investor concerns, assuring them that the company’s expansion plans remain unchanged. "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 stated.
Despite its optimistic outlook, TSMC faces an uncertain future amid geopolitical volatility and evolving trade policies. The company’s continued investment in overseas production facilities and its commitment to technological innovation will be crucial in navigating these challenges and maintaining its position as the world’s leading chipmaker.
The global semiconductor landscape is undergoing rapid change, driven by factors including growing AI demand, evolving geopolitical dynamics, and ongoing trade tensions. TSMC’s ability to adapt and thrive in this dynamic environment will be closely watched by investors and industry experts alike.
Disclaimer: The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
