Taiwan Semiconductor Manufacturing Co (TSMC) has entered a kind of elite club of the most valuable companies in the world demonstrating by its example that the rapid development of the artificial intelligence industry and the technological evolution of AI are factors in significant impact on the state of affairs on Wall Street.
Last Monday, July 8, the mentioned company, whose shares are listed in Taiwan and New York, briefly surpassed the historical mark of market capitalization of $1 trillion. In terms of the mentioned indicator, this chip manufacturer is ahead of Tesla. Also, TSMC in the context of the market capitalization figure became the seventh technology giant on the stock market.
Currently, the top three most valuable companies in the world are Microsoft, Apple, and Nvidia. It is worth noting that all of these brands are involved in the artificial intelligence industry. Microsoft has invested in OpenAI, the developer of the ChatGPT chatbot, and uses its technologies in its digital ecosystem. Apple presented its strategy of action in the artificial intelligence industry in June. After the corresponding event, there was a sharp increase in the price of shares of the iPhone developer, allaying investors’ fears regarding the actual lack of involvement in the area of machine intelligence. Nvidia’s value crossed the historical $3 trillion mark last month. This company develops graphics processing units, which are necessary for the training and subsequent functioning of artificial intelligence systems.
Alphabet and Amazon’s value exceeded the $2 trillion mark this year.
CFRA analyst Angelo Zino says the semiconductor industry is now the leading sector in the S&P 500. The corresponding state of affairs formed over the past 15 or 18 months, the expert said. Angelo Zino noted the mentioned situation is evidence of how much the world has changed.
Against the background of the highly intensive development of the artificial intelligence industry, there is an increase in consumer demand for chips. The corresponding tendency is because generative machine intelligence, as it evolves, requires more and more computing power. For the artificial intelligence industry, the chip is what can be described as a basic component, without which the operation of large functional systems is impossible. The outlook for continued demand for microcircuits is positive. This forecast is based on the fact that the artificial intelligence industry is on a trajectory of active development, is a source of important substantive transformations for many spheres of activity, and has significant potential that has not yet been fully realized, the materialization of which is expected to take place in the future.
Chip manufacturers not only raise funds from investors but also receive many government subsidies. For example, the administration of United States President Joe Biden has provided financial support amounting to several tens of billions of dollars for the construction of factories for the production of microcircuits in the US.
A preliminary forecast based on data from the Semiconductor Industry Association predicts that the current year’s global sales of semiconductors, including integrated circuits, microprocessors, and memory chips, will reach $611.2 billion. This figure is a record for the industry.
The Semiconductor Industry Association also predicts that the sales in the mentioned commercial area will grow by 16% in the current year. Moreover, it is expected that in 2025 the corresponding figure will increase by 12.5%.
TSMC is positioned to become one of the main beneficiaries of the growth in consumer demand for chips. It is worth noting that the company has already begun moving in the corresponding direction and has demonstrated significant results. Nvidia, which is one of the most valuable companies in the world due to the highly intensive development of artificial intelligence, develops graphics processing units but does not manufacture corresponding products. The firm maintains confidentiality regarding its supply chain. At the same time, it is widely believed that the bulk of Nvidia’s products are made by TSMC.
Most of the Taiwanese technology giant’s manufacturing facilities are based in Taiwan. TSMC currently controls more than half of the world’s semiconductor demand. In the first quarter of the current year, the company’s sales in financial terms amounted to $18.87 billion. This figure increased by 13% compared to the result for the same period last year. The company’s net income for the first quarter of the current year was recorded at $6.97 billion. The corresponding figure showed an increase of 9% year on year. By comparison, Nvidia’s revenue for the quarter ended April 28 this year was recorded at $26 billion. This figure increased by 262% compared to the result for the same period last year.
Morgan Stanley expects TSMC to raise estimates for its 2024 sales on its earnings announcement next week. Experts of this banking holding company increased the target price of the Taiwanese manufacturer by approximately 9%. It is worth noting that the growth in the company’s value was recorded precisely after the mentioned decision of Morgan Stanley. Also, experts from the banking holding company are confident that TSMC is increasing wafer prices due to its strong negotiating position.
Morgan Stanley analysts, including Charlie Chan, said in a note late last week that the Taiwanese manufacturer’s so-called hunger marketing strategy appears to be working. Also, in their opinion, based on the latest supply chain checks, TSMC is signaling that next year the leading-edge foundry supply could be tight and customers may not get sufficient capacity allocation without appreciating the company’s value.
JPMorgan analysts, including Gokul Hariharan, also predict that the mentioned manufacturer will raise revenue guidance during its earnings report next week. These experts, in a note published last week, said they expect TSMC to sound more constructive about the demand for artificial intelligence accelerators.
Morgan Stanley and JPMorgan joined brokers including Nomura Holdings and Mizuho Securities in being bullish on the Taiwanese manufacturer’s second-quarter financial results this year. The consensus forecast in this case provides the company’s revenue to grow by about 35% compared to the result for the same period in 2023.
TSMC stock has been under increased scrutiny over the past year. At that time, Warren Buffett’s Berkshire Hathaway closed out of a $5 billion position in the company. In this case, geopolitical risks were noted on the part of China, which, in the context of its concept of political geography, perceives Taiwan as part of its territory. Since then, TSMC shares have been on a growth trajectory. The corresponding tendency is observed in both the United States and Taiwan.
TSMC CEO C.C. Wei last month hinted that the company was considering raising prices for its products. Also in April, he said that the firm intends to charge customers more if they wanted their chips made outside Taiwan. In this context, C.C. Wei noted that a request to manufacture microcircuits in a specific location means additional costs that must be shared between TSMC and the client. Moreover, he said that in the current context of a fragmented globalization environment, costs will be higher for everyone, including his company, customers, competitors, and the entire semiconductor industry.
In April, Taiwan raised electricity tariffs for large industrial consumers, putting pressure on TSMC’s profits. C.C. Wei stated that inflation and electricity were leading to higher costs.
TSMC currently has four 12-inch wafer-producing plants, the same amount of 8-inch wafer-manufacturing plants, and one 6-inch wafer-making plant in Taiwan. Moreover, the TSMC Nanjing subsidiary has one factory manufacturing 12-inch wafers in China. TSMC Washington has two plants producing 8-inch wafers in the United States.
The company’s offices are located in several parts of the world, including Asia, Europe, and North America.
In 2021, TSMC launched production of 3nm chips. The corresponding technology is the most advanced in the semiconductor industry. Over time, the mentioned production has been expanded to meet the varied needs of customers.
