Semiconductor Giant’s Earnings Reveal a Bright Future for Chipmakers
Taiwan Semiconductor Manufacturing (TSM) recently released its fourth-quarter 2024 results, offering valuable insights into the state of the semiconductor industry. As a leading semiconductor foundry, TSM serves a diverse range of customers, including fabless chipmakers like Nvidia and consumer electronics companies. Last year, the company manufactured an impressive 12,000 products across various categories, including smartphones, personal computers, data centers, automotive applications, and the Internet of Things (IoT).
Revenue Growth and Guidance
TSM’s revenue surged 37% year over year to $26.9 billion in the last quarter, with management providing robust guidance for Q1 2025, anticipating top-line growth of 34% to $25.4 billion. For the full year, the company expects its 2025 revenue to increase in the mid-20% range. This suggests that demand for the chips TSM manufactures will remain strong, which is encouraging news for Nvidia shareholders.
Nvidia’s Prospects Look Bright
Nvidia, one of TSM’s top three customers, has faced challenges recently, including a potential slowdown in AI infrastructure spending, increased competition, and U.S. government restrictions on chip sales to foreign countries. However, TSM’s outlook is a bullish signal that Nvidia could have another solid year in 2025. The company anticipates sales of AI chips to double in 2025, driven by “the strong surge in AI-related demand.”
Capital Expenditures and Advanced Chip Production
TSM plans to invest significantly in advanced chip production, with capital expenditures ranging from $38 billion to $42 billion this year, a substantial increase from last year’s outlay of $29.8 billion. Around 70% of its 2025 capex will be dedicated to the manufacture of advanced chips, including 7-nanometer (nm) or smaller process nodes. These advanced chips are in high demand, particularly for AI graphics processing units (GPUs) used by companies like Nvidia.
Nvidia’s Allocation and Growth Potential
Nvidia has reportedly been allocated 60% of TSM’s advanced chip packaging capacity this year, which should enable the company to fulfill more orders for its latest Blackwell chips. With demand exceeding supply, there is a strong possibility of Nvidia beating Wall Street’s expectations this year. As a result, Nvidia’s revenue estimate for fiscal 2026 has moved higher, and the company’s stock remains an attractive buy in 2025, with a reasonable valuation and a price/earnings-to-growth ratio (PEG ratio) of 0.99.
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