Taiwan Semiconductor Manufacturing Co. (TSMC), the world’s largest contract chipmaker, is on track to report a significant surge in third-quarter profits, driven by unprecedented demand for artificial intelligence (AI) applications. The company is expected to announce a net profit of T$298.2 billion ($9.27 billion) for the quarter ending September 30, marking a 40% increase from T$211 billion in the same period last year, according to an estimate from LSEG SmartEstimate, which aggregates the forecasts of 22 top analysts.
As AI technology continues to revolutionize industries globally, companies like TSMC are reaping the rewards of their indispensable role in this transformation. TSMC’s advanced semiconductor technologies are at the heart of AI systems, with demand soaring for its cutting-edge chips used in everything from AI servers to smartphones. The company counts Apple, Nvidia, AMD, Qualcomm, and MediaTek among its key clients, all of which have accelerated their production of AI-powered products.
Li Fang-kuo, chairman of President Capital Management, emphasized the close relationship between TSMC’s technology and its customers’ success. “Most of TSMC’s major clients, including Apple and Nvidia, are launching new products that heavily rely on TSMC’s advanced process technologies,” Li said. “TSMC’s Q3 earnings will exceed expectations by a lot,” he added.
TSMC has become a global leader in the fabrication of highly sophisticated semiconductor chips. Its position as the main producer of chips used in AI, gaming, and data processing has placed the company at the center of the ongoing AI boom. These chips enable AI applications to process large datasets and power advanced machine learning algorithms.
The anticipated profit surge follows TSMC’s earlier announcement of a jump in third-quarter revenue, measured in Taiwan dollars, which comfortably exceeded market expectations. The company’s success reflects the broader shift in global technology trends, with AI now dominating the conversation in industries ranging from healthcare to finance.
TSMC’s quarterly earnings call, scheduled for 0600 GMT on Thursday, is expected to provide further details on the company’s revenue outlook and updated capital expenditure plans. On its previous earnings call in July, TSMC raised its full-year revenue forecast and announced a capital expenditure range of between $30 billion and $32 billion for 2023. This was a revision of an earlier estimate of $28 billion to $32 billion, showcasing the company’s confidence in its ability to maintain its growth trajectory.
One of the key factors driving TSMC’s growth is its aggressive global expansion strategy. The company has embarked on several high-profile projects to build semiconductor fabrication plants overseas, particularly in the United States. TSMC is investing $65 billion in three new facilities in Arizona, a state that is rapidly becoming a hub for chip manufacturing.
These facilities will significantly bolster TSMC’s production capacity, enabling it to meet the rising global demand for chips. However, despite these international ventures, TSMC has consistently affirmed that the majority of its production will remain in Taiwan, where the company is headquartered in Hsinchu.
While the move to establish production facilities outside of Taiwan has been driven by geopolitical concerns and client demands for more localized supply chains, Taiwan continues to be the backbone of TSMC’s operations. TSMC plays a crucial role in Taiwan’s export-oriented economy, with the company often referred to as the “sacred mountain protecting the country” due to its importance.
The surging demand for AI chips has not only boosted TSMC’s profits but has also driven up its stock price. As of October, TSMC’s shares listed on the Taipei Exchange have skyrocketed by 77% this year, compared to a 28% increase in the broader market. This growth reflects investor confidence in TSMC’s ability to maintain its leadership in the semiconductor industry, even as global competition intensifies.
TSMC’s value is closely linked to its dominance in producing advanced 5-nanometer and 3-nanometer chips, which are critical for AI applications, smartphones, and high-performance computing. These chips allow for faster data processing, energy efficiency, and enhanced performance in devices.
In contrast, competitors such as Intel have struggled to keep pace with TSMC’s technological advancements. Once the dominant force in the semiconductor industry, Intel has faced mounting losses as it works to develop its own contract manufacturing division in hopes of challenging TSMC. Intel’s attempts to catch up in the chip race have underscored the importance of TSMC’s current technological lead, especially in the AI-driven era.
Despite its recent success, TSMC faces significant challenges related to the global semiconductor supply chain and geopolitical tensions, particularly between the United States and China. The chip industry has been a focal point of the U.S.-China trade war, with the U.S. imposing restrictions on China’s access to advanced semiconductor technology.
TSMC’s leadership has navigated these challenges by carefully balancing its customer base, which includes major American and Chinese companies. While the U.S. remains a critical market for TSMC, with clients like Apple and Nvidia, China’s demand for semiconductors also represents a substantial portion of its business.
As a result, TSMC has had to adjust its operations to comply with international trade regulations and to mitigate risks associated with its reliance on certain markets. In particular, the company has been cautious about expanding its manufacturing footprint in China, given the evolving political and economic landscape.
Furthermore, the rising demand for chips, exacerbated by the AI boom, has put pressure on global supply chains. Shortages of critical materials and components have disrupted production for many tech companies, creating bottlenecks in the supply chain. While TSMC has so far managed to avoid major disruptions, the broader semiconductor industry remains vulnerable to these challenges.
Looking ahead, TSMC’s outlook remains optimistic as the AI boom shows no signs of slowing down. AI technologies are expected to continue advancing, driving demand for more powerful and efficient semiconductors. TSMC’s leadership in this sector, combined with its ongoing investments in research and development, positions the company well for future growth.
At the same time, TSMC’s capital expenditure plans highlight its long-term strategy to stay ahead of the competition. The company is expected to ramp up production of its 3-nanometer chips, which will be used in next-generation smartphones and AI systems. These chips represent a significant leap forward in semiconductor technology, allowing for even greater data processing capabilities and lower energy consumption.
As TSMC continues to expand its global footprint, it will likely face increased competition from other chipmakers, particularly in the U.S. and China. However, TSMC’s technological edge, combined with its strategic partnerships with leading tech companies, gives it a competitive advantage that will be difficult to overcome.
TSMC’s anticipated 40% jump in third-quarter profit underscores its pivotal role in the global AI revolution. As the primary supplier of advanced semiconductors used in AI applications, TSMC has become an indispensable player in the tech industry. Its strong relationships with major clients like Apple and Nvidia, coupled with its aggressive global expansion strategy, have allowed the company to capitalize on the surging demand for chips.
