Earnings Report Preview | AI Chip "King of Foundry" Taiwan Semiconductor Q2 Surges in Orders, Profit Expected to Increase Sharply by 30%

According to Caijing Finance, the world's largest contract chipmaker Taiwan Semiconductor (TSM.US) will announce its second-quarter results on Thursday. As a major producer of artificial intelligence chips, analysts expect the company's second-quarter profit to increase by 30%. Based on a survey of 20 analysts by LSEG SmartEstimate, the quarterly net profit of Taiwan Semiconductor as of June 30 is estimated to be NT$ 236.1 billion (approximately USD 7.25 billion). Taiwan Semiconductor reported a significant increase in second-quarter revenue last week, easily surpassing market expectations.

Taiwan Semiconductor's clients include Apple (AAPL.US) and NVIDIA (NVDA.US). The AI boom has driven Taiwan Semiconductor's stock price and the entire Taiwan stock market to record highs. Last week, Taiwan Semiconductor's market value on the US stock market exceeded USD 1 trillion. Li Fang-kuo, Chairman of Capital Management, stated, "I expect the outlook for all their products in the third quarter to be very good," said the Chairman of Capital Management.

Taiwan Semiconductor will also update its current quarter and full-year performance outlook, including capital expenditures as it accelerates expansion. Taiwan Semiconductor is investing billions of dollars in building new factories overseas, including investing USD 65 billion to build three factories in Arizona, USA. However, the company stated that most of its manufacturing operations will remain in Taiwan.

During the last earnings conference call held in April, Taiwan Semiconductor maintained its capital expenditure guidance for this year at USD 28 billion to USD 32 billion, compared to USD 30.45 billion last year, with 70% to 80% allocated to advanced technology.

Chu Yen-min, Chairman of KGI Securities Investment Advisory Co., said, "Taiwan Semiconductor may increase capital expenditures. Many positive factors will help their stock price and support the entire market."

The AI boom has helped boost the stock price of this Asian company with the highest market value. So far this year, Taiwan Semiconductor's stock listed in Taipei has risen by 75%, reaching a historical high, while the market has risen by 33%. Taiwan Semiconductor plays a crucial role in Taiwan's export-dependent economy. Despite challenges from Intel (INTC.US) and Samsung trying to challenge this dominant position, Taiwan Semiconductor faces little competition.

Benefiting from the "AI dividend," Taiwan Semiconductor's market value exceeds USD 1 trillion, and Wall Street is optimistic

Boosted by the AI boom, Taiwan Semiconductor's second-quarter sales exceeded market expectations. Data released by Taiwan Semiconductor last Wednesday showed that the company's net revenue in June was NT$ 207.9 billion, meaning that second-quarter net revenue reached NT$ 673.5 billion, a 40% year-on-year increase, higher than the market's average expectation of 35.5%.

Last week, Taiwan Semiconductor's US stock price reached a historical high, surpassing the trillion-dollar mark in market value. Wall Street analysts pointed out that the strong demand for advanced process chips driven by the AI boom will boost Taiwan Semiconductor's bargaining power. Top Wall Street investment banks such as Citigroup, Goldman Sachs, and Morgan Stanley have raised their target prices for Taiwan Semiconductor as a result TSMC relies on decades of chip manufacturing technology accumulation in the chip manufacturing field, as well as long-term leading-edge technology improvements and innovations in chip manufacturing (pioneering the FinFET era, leading the 2nm GAA era), leading global chip manufacturers with advanced processes and packaging technologies, and occupying the vast majority of global chip foundry orders for a long time, especially for 5nm and below advanced process chip foundry orders.

Currently, TSMC, with its leading industry 2.5D/3D chiplet advanced packaging, has taken almost all 5nm and below high-end chip packaging orders in the market, and the advanced packaging capacity is far from meeting the demand. NVIDIA's H100/H200 are in short supply, mainly due to the limitation of TSMC's 2.5D CoWoS packaging capacity. According to Wall Street analysts' expectations, starting from the second half of 2024, driven by the demand for NVIDIA's GB200 and AMD's new MI325 series, 3nm and below advanced processes will continue to bring huge revenue contributions to TSMC. The price increase of 3nm and below processes and advanced packaging foundry services from next year onwards will help accelerate revenue growth in 2025 and the following years.

In its latest report, Macquarie Securities pointed out that based on supply chain checks, most of TSMC's customers have agreed to raise foundry prices in exchange for reliable supply, which will further drive TSMC's gross margin. Analysts estimate that TSMC's gross margin will climb to 55.1% in 2025; approaching sixty percent in 2026, reaching 59.3%.

Industry insiders analyze that this price increase may be based on a comprehensive consideration of market demand, capacity, and costs. It is reported that major companies such as Apple, Qualcomm (QCOM.US), NVIDIA, and AMD (AMD.US) have already booked TSMC's 3nm family process capacity on a large scale, and the phenomenon of customers queuing up is expected to continue until 2026