Taiwan Semiconductor Manufacturing Company just announced that its third quarter net profit increased by 54%. TSMC’s growth was driven by strong demand for artificial intelligence technology, but the market is questioning whether the hype around AI and AI chips can be sustained.
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Semiconductor giant Taiwan Semiconductor Manufacturing Company just reported strong growth thanks to continued enthusiasm for artificial intelligence, even amid persistent doubts about the technology’s return on investment.
TSMC, the world’s largest contract chip maker, reported a better-than-expected 54% increase in third-quarter net profit to a record NT$325.3 billion ($10.1 billion). Analysts had expected the company to post a profit of NT$300.2 billion, according to LSEG SmartEstimate.
The company’s third-quarter sales rose 36% to $23.5 billion, also exceeding previous estimates of $22.4 billion to $23.2 billion. The company expects fourth-quarter sales to be between $26.1 billion and $26.9 billion, up from $19.6 billion in the year-ago period.
The Taiwanese company’s blockbuster results came after Dutch chip equipment maker ASML, a supplier to TSMC, reported guidance on Tuesday that disappointed investors and triggered a sell-off in chip stocks.
One of the first questions asked during TSMC’s analyst earnings call Thursday was whether an AI bubble exists.
CC Wei, chairman and CEO of TSMC, said the demand for AI is “real.”
Wei said TSMC’s experience in leveraging AI and machine learning in its factories and R&D operations has resulted in increased productivity, and thus a measurable return on investment.
“We are not the only company benefiting from AI applications,” Wei said, adding that the demand trend is only just beginning.
Shares of Taiwan’s TSMC closed 0.96% lower on Thursday, but are up nearly 75% since the beginning of the year and near a record high.
TSMC’s strong third-quarter results show that the AI spending party is still on, despite concerns to the contrary.
As Goldman Sachs asked in a June report, “Will this heavy spending pay off?”
In August, AI chip maker Nvidia caused market turmoil by posting higher-than-expected profits but falling short of high expectations amid concerns over returns on AI investments.
TSMC investors seemed convinced immediately after the financial results were announced. TSMC’s American deposit receipts on the New York Stock Exchange soared more than 7% in after-hours trading after the earnings announcement.
ASML: Chinese demand is normalizing from high levels
TSMC’s positive results were in contrast to ASML’s results.
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The company lowered its 2025 sales outlook on Tuesday, and its stock price fell 16%, the biggest single-day decline in 26 years. The stock extended its losses to close 5.1% lower on Wednesday, and is down 7% year-to-date.
“While we continue to see strong developments and upside potential in the AI sector, recovery in other market segments is taking longer,” ASML CEO Christophe Fouquet said in a statement on Tuesday. said.
ASML Chief Financial Officer Roger Dassen said Wednesday that U.S. export restrictions are also expected to contribute to future sales declines.
“We all read the newspapers, right? We all know there’s speculation around export controls. This is the driving force behind taking a more cautious view of sales in China. ” Dassen said.
China is a significant customer for ASML, accounting for approximately a quarter of its 2023 net sales. However, ASML has never sold its state-of-the-art chip machines to Chinese customers due to existing export regulations.
China is stockpiling high-tech products, including ASML machines, in anticipation of further export restrictions. But ASML still expects sales to China to fall by one-fifth of total sales next year, which Dassen said is “normal.”
The 2025 guidance range was determined during the 2022 Investor Day, so it “makes perfect sense” for ASML to make some adjustments to its guidance, said Andy Lee, senior semiconductor and technology analyst at CreditSights. told Business Insider.
However, the demand for AI is not suddenly decreasing.
“ASML’s order growth forecast was a little too aggressive and its valuation was overstated, but I don’t think this can be viewed as a meaningful outlook for near-term demand for AI,” Lee said.
