AI chip demand remains strong, Taiwan Semiconductor's Q3 revenue exceeds expectations, surging by 39%

According to the Zhitong Finance and Economics APP, Taiwan Semiconductor (TSM.US) announced a 39% increase in quarterly revenue, better than expected, easing concerns about a decrease in spending on artificial intelligence hardware.

The major chip manufacturers for NVIDIA (NVDA.US) and Apple (AAPL.US) reported sales of NT$759.7 billion (US$23.6 billion) for the September quarter, higher than the analyst average expectation of NT$748 billion. The company will announce its third-quarter performance next Thursday.

Taiwan Semiconductor is one of the key companies benefiting from the surge in global artificial intelligence development spending, producing cutting-edge chips required for training artificial intelligence. Since 2020, its sales have more than doubled, and the groundbreaking launch of ChatGPT has sparked a race to purchase NVIDIA's artificial intelligence server cluster hardware.

However, in recent months, there have been diverging views on whether the growth momentum driven by artificial intelligence will continue.

Some investors warn that without convincing and profitable artificial intelligence use cases, companies like Meta (META.US) and Google (GOOGL.US) will not be able to sustain their current pace of infrastructure spending. This skepticism led to a decline in artificial intelligence stocks earlier this year, including leading companies like NVIDIA.

Nevertheless, since the launch of ChatGPT, Taiwan Semiconductor's stock price has more than doubled, and its market value briefly exceeded the $1 trillion mark in July. That month, following better-than-expected quarterly performance, the chip foundry also raised its revenue growth expectations for 2024.

This upward revision highlights Taiwan Semiconductor's view that despite escalating geopolitical tensions, artificial intelligence spending will remain high.

Some analysts are concerned that the delayed delivery of NVIDIA's latest Blackwell chip may disrupt the industry, but most investors do not see this as a long-term issue for Taiwan Semiconductor. With Intel (INTC.US) and Samsung Electronics (SSNLF.US) both struggling in custom chip manufacturing, Taiwan Semiconductor's market leadership is expected to help boost its profit margins.

NVIDIA's main server assembly partner, Hon Hai Precision Industry (Foxconn), also reiterated earlier this week that demand for artificial intelligence hardware remains strong. Hon Hai Chairman Liu Yangwei stated in an interview on Tuesday that the company plans to increase server capacity to meet the "crazy" demand for the next generation Blackwell chip, echoing similar comments made earlier this month by NVIDIA CEO Jensen Huang.

Bloomberg Intelligence analyst Charles Shum: "Although demand for the new iPhone 16 may be weak, leading to a potential decline in Apple's A18 chip orders, strong orders from NVIDIA and Intel may offset any revenue gap for Taiwan Semiconductor." Other key topics include the potential for mass production of early 2-nanometer (N2) nodes, as well as plans to expand its CoWoS packaging capacity by 2025."

Currently, more than half of TSMC's revenue comes from high-performance computing, driven by the demand for artificial intelligence. Despite growing concerns among analysts about lower-than-expected demand for the new iPhone 16 series, TSMC remains the sole manufacturer of iPhone processors