Last week, Taiwan Semiconductor (TSM) traded above $210 before settling at $200.78. The company reported a blowout quarter, thanks to strong demand for artificial intelligence-related chips.
In the third quarter, TSM posted revenue of NT$759.69 billion, up by 39% Y/Y. High-Performance Computing accounted for more than half of its revenue. On the conference call, CEO Wei said that the firm applied AI technology to create more value for its production. For example, it achieved greater productivity, efficiency, speed, and higher quality. 1.0% in productivity gains is worth about $1 billion for TSMC.
The company expects to increase its capital expenditure in the next few years. This would support the strong demand it expects at that time.
Looking into 2025, expansion overseas will weigh on gross margin. This would probably cost around 2% to 3%. Although the N3 ramp-up will increase costs, it will pay off as the firm converts its N5 capacity to N3.
In 2026, TSM would benefit from N2 production.
Risks
After the earnings report, the market adjusted for the slight cost risks associated with TSM’s expansion. The overseas fabs investment is on a smaller scale. This would have a higher initial cost and lower profitability. However, it will improve over the next few years.
TSM is therefore an attractive long-term investment.
