Apple Supplier TSMC Surges on Better-Than-Expected Outlook, Anticipated AI Gains in 2024

Taiwan Semiconductor Manufacturing Company’s (TSM) American depositary receipts (ADRs) surged over 7% in intraday trading Thursday after the company released a better-than-expected outlook for 2024, anticipating gains from the artificial intelligence (AI) boom.

The world’s largest semiconductor foundry or manufacturer for other companies by revenue, TSMC supplies many “fabless” firms and chip designers including Apple (AAPL), Nvidia (NVDA), and Qualcomm (QCOM) with semiconductors to use in their products.

The chipmaker reported fourth-quarter fiscal 2023 earnings per share (EPS) of $1.44 on revenue of $19.62 billion, down from the same period a year ago, but in line with analyst projections and slightly above the company’s previous forecast of between $18.8 billion and $19.6 billion.

“Our fourth quarter business was supported by the continued strong ramp of our industry-leading 3-nanometer technology,” Wendell Huang, TSMC Vice President and Chief Financial Officer (CFO), said.

The company also said it expects between $18 billion and $18.8 billion in revenue in the first quarter of 2024, more than $1.25 billion higher than its revenue in the first quarter of 2023. For the full year, TSMC said it anticipates revenue to rise in the low to mid-20% range as the broader semiconductor market improves.

“Just like Taiwan is a big country for semiconductor[s], it can be a big country for artificial intelligence in the future,” Mark Liu an executive chairman at TSMC said, noting that “AI is only in its nascent stage” and that the company finds that today’s AI innovation is “the tip of the iceberg” for the tech.

Management added TSMC’s 2024 capital budget will be between $28 billion and $32 billion, most of which will be allocated for advanced process technologies, and noted that higher levels of capital expenditures at TSMC have typically correlated with higher growth opportunities in the years that followed.

Analysts at Wedbush said they “see this more bullish outlook as predicated upon some combination of optimism around a growing contribution from AI, better expectations for traditional end market trends in 2024 (with comps benefiting from customer rationalization of inventories), and TSMC share gains.”

Jefferies analysts said that TSMC’s “full-year outlook is much better than expected” due to several drivers including increased business from Apple “as all iPhone models will be equipped with TSMC’s N3 process.” The firm noted that “AI remains the highest growth area at TSMC.”

ADRs of TSMC were up 7.3% at $110.41 as of about 12:25 p.m. ET Thursday following the news. They’ve gained over 23% over the past year.