Leading chip manufacturer Taiwan Semiconductor Manufacturing Company yesterday published its Q4 earnings update and with expectations of revenue growth of 20% in 2024, has the semiconductor industry finally turned a corner?
Taiwan Semiconductor Manufacturing Company (or TSMC as it’s better known) is widely regarded as the “world’s foundry”, acting as the main chip maker for leading technology companies such as Apple and Nvidia. The largest manufacturer in the world[1], it continues to innovate and drive forward leading-edge chip technology used in mobile phones, computers, and datacentres, and which underpin recent advancements in AI.
Yet despite its formidable scale and IP, as a manufacturer TSMC is still susceptible to industry forces and cyclical swings. 2023 was a tough year for the semiconductor industry, with weakening global macroeconomic conditions and high inflation and interest rates exasperating a prolonged semiconductor inventory cycle and overall years-long “tech slump”.
However, if TSMC’s Q4 earnings update yesterday are anything to go by, it appears the industry may have turned a corner, with its CEO Che-Chia Wei announcing “our business has bottomed out on a year-over-year basis and we expect 2024 to be a healthy growth year for TSMC”.
Chipmaker TSMC expects growth to bounce back in 2024
Source: Bloomberg, TSMC, January 2024.
Signs of a turning cycle
TSMC is expecting revenue growth to of at least 20% for the year ahead, marking a stark contrast to the negative growth experienced in 2023 and signalling a potential turning point in the industry cycle. Accompanying this positive outlook is TSMC's readiness to increase capital spending, ensuring it is well-equipped to meet any additional demand. This strategic move underlines the company's confidence in a robust recovery and its commitment to maintaining its industry-leading position.
Recovery sprouting
Source: SIA, Bloomberg, January 2024.
AI at the forefront
Central to TSMC's growth expectations is the global AI development boom, a sector requiring the powerful chips that are TSMC's forte. CEO Che-Chia Wei emphasised the company's pivotal role, akin to its influence in the smartphone industry with Apple, in driving the AI revolution. He stated: “The surge in AI-related demand in 2023 supports our conviction that demand for energy-efficient computing will accelerate.”
TSMC is a key enabler of AI applications. With AI technology rapidly evolving towards more complex models and increased computational needs, TSMC's advanced semiconductor technologies are becoming increasingly valuable. Reflecting this, TSMC has raised its AI revenue contribution expectations to at least high-teens by 2027, up from low-teens just six months ago. This upward revision not only reflects the current momentum but also TSMC's strong positioning to try to capitalise on the burgeoning AI market.
Global Innovation funds
In Q4, we invested in TSMC across all three funds in the Global Innovation fund range. This classic innovator enabled the platform shift to accelerated computing and when combined with the cyclical weakness, we were able to build positions at a great entry price. We believe this is the start of a new technology cycle and that TSMC is in prime position to benefit from the build out of a new computing infrastructure.
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