Taiwan Semiconductor Manufacturing: A Leader in AI Chip Production
Strong Revenue Growth and Upbeat Guidance
Taiwan Semiconductor Manufacturing (TSMC) has once again impressed investors with its strong revenue growth and optimistic outlook. The company’s shares surged after it reported a 37% increase in revenue to $26.9 billion in the fourth quarter, beating analyst estimates. Earnings per American depositary receipt (ADR) also soared 56% to $2.24.
AI Chips Drive Growth
Artificial intelligence (AI) chips have been a key driver of TSMC’s growth, with high-performance computing (HPC) accounting for 53% of its revenue in the quarter. HPC revenue climbed 19% sequentially, and the segment’s contribution to overall revenue has increased from 43% a year ago. Smartphone chip sales also rose 17% quarter over quarter, representing 35% of total revenue.
Advanced Technologies on the Rise
TSMC’s advanced technologies continue to gain traction, with nodes 7 nanometers (nm) and under accounting for 74% of its revenue. Three nanometer technology, in particular, has seen significant growth, accounting for 26% of total wafer revenue, up from 20% last quarter and 15% a year ago.
Gross Margin Expansion
The company has benefited from pricing power and high capacity utilization, leading to a 600 basis point year-over-year expansion in gross margin to 59%. This has resulted in higher profits, as revenue drops to the bottom line.
Guidance and Outlook
TSMC has forecast first-quarter revenue to come in between $25 billion and $25.8 billion, representing about 35% year-over-year growth at the midpoint of its guidance range. It expects gross margin to be between 57% and 59% and operating margin between 46.5% and 48.5%. The company is looking for full-year 2025 revenue to grow by close to mid-20% levels, with AI accelerator revenue expected to double.
Capacity Expansion
TSMC plans to spend between $38 billion and $42 billion on capital expenditures this year, up from nearly $30 billion last year. Its first fab in Arizona has already entered high production volume, and its new Japanese foundry started production at the end of Q4. The company has plans for two more facilities in Arizona and one in Germany.
Attractive Valuation
With a forward price-to-earnings (P/E) ratio of 24 times based on analysts’ 2025 estimates and 20.5 times based on 2026 estimates, TSMC’s stock appears undervalued. Its forward price/earnings-to-growth ratio (PEG) of under 0.7 also suggests that it is a good buy.
A Solid Option
TSMC’s strong revenue and profitability growth, combined with its attractive valuation, make it a solid option for investors. The company’s leadership in AI chip production and its ability to benefit from the growth of AI infrastructure and data centers make it an attractive play in the technology sector.
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