Taiwan Semiconductor Manufacturing (NYSE: TSM) just reached rarified air. The semiconductor giant -- known as TSMC -- just surpassed a market cap of $1 trillion after reporting phenomenal growth for the third quarter. Excluding state-owned enterprises, this is the ninth company in the world to reach a market value above $1 trillion.
Benefitting directly from growing spending on artificial intelligence (AI) computer chips, TSMC is dominating the semiconductor foundry market and is showing no signs of slowing down. Here's what might come next for the stock.
TSMC is the only company in the world that can manufacture ultrafast computer chips with the smallest transistor length. These 3- and 5-nanometer "nodes" made up around half of the company's revenue in the third quarter, which shows the high prices and surging demand computer chip companies have for these products. Due to this demand, TSMC is now forecasting 30% revenue growth in U.S. dollar terms for 2024.
Let's break down this growth from the high-performance compute (HPC) segment, which is where TSMC classifies spending for AI computer chips. In Q3 of 2024, revenue for HPC chips made up 51% of overall revenue. In the same quarter last year, it made up 42% of revenue. This means there was $12 billion in HPC revenue last quarter compared to $7.26 billion in 2023 (in U.S. dollar terms), or approximately 65% year-over-year revenue growth. This is astounding growth for a company so large.
Management sees growth continuing through 2025. The company lays out capital expenditures on new factories in anticipation of demand in future years. As of the latest update, it is planning on spending $30 billion on capital expenditures in 2024. In turn, this should lead to revenue growth in 2025 and 2026 as long as these new factories are utilized.
A big change for TSMC in the next few years will be diversifying outside of its home market in Taiwan. The company and its customers want to stop Taiwan from becoming a chokepoint for semiconductor supply because of the Chinese government's military rhetoric around the island.
The good news is these new factories are in the process of being built. Three fabrication facilities are being built in Arizona, with high-volume production expected to come at the start of 2025 for the first facility. It has advanced process nodes, meaning it can serve customers for the all-important HPC segment. The second and third facilities will hopefully be ready by the end of this decade.