TSMC’s third quarter 2023 financial report shows that the company benefited from the growth in demand for smartphones and successfully reversed some of the impact of the slowdown in the chip industry’s growth in three of the four quarters this year. The financial report showed that full-year revenue fell as designers expected high demand levels to continue and the chip industry shrank since orders flowed to foundries in 2023, while the small sequential growth proved to be seasonal.
However, compared with the pessimistic attitude of TSMC management in the second-quarter financial report, the company's third-quarter earnings call was slightly optimistic, which was supplemented by the latest report from Citigroup, explaining that the chip industry's inventory replenishment has finally begun to pick up.
Citi believes demand for high-performance (HPC) and artificial intelligence products will be a catalyst for the chip industry
In TSMC’s financial report, high-performance computing remains the division’s largest revenue driver, and judging from the report provided by Taiwanese media United News Network today, this seems to be the case in the future. The financial company believes that HPC and AI chips manufactured using high-end manufacturing processes such as 3 nanometers can drive TSMC's revenue growth, with a compound annual growth rate of 20%.
In addition, although Citi maintains the target stock price of TSMC at NT$660 and gives it a buy rating, the driving effect of HPC and AI on the chip industry makes it more optimistic about the prospects of mature nodes. The company raised its price target for UMC to NT$61 from the previous NT$56 and maintained a "buy" rating on the stock.
UMC's shares closed at NT$48.60 in Taiwan on the most recent trading day, while TSMC's Taiwan share price currently trades at NT$544 - suggesting that if the target is achieved in due course, the share price will rise significantly. UMC is a major supplier of older chip technology for general purpose tasks.
TSMC share price performance shows impact of high demand for artificial intelligence and high-performance computing
TSMC's stock price is up 20% this year as sluggish demand for personal computing and the growth of artificial intelligence act as a reverse catalyst.
In addition, the factory may receive more orders for personal computing products in the future, as a Reuters report revealed that AMD and NVIDIA are looking to launch PC chips designed with Arm microarchitecture to compete with Apple. NVIDIA's stock price closed up 3.84% today. At the same time, the share price of ARM, which recently went public after the failed merger with Nvidia, rose 4.89% as investors believed that Nvidia might unleash more market demand for the British company's chip intellectual property.
The report speculates that Nvidia and AMD may develop a marketable product by 2025, which would provide an interesting case study for AMD consumers if the results are as reported. Of the two companies, AMD is the only one that can design both ARM and x86 processors, giving it unique insights into chip design.
TSMC is at the heart of both companies' plans because it is the only company in the world capable of delivering thousands of processors produced using the latest manufacturing technologies. TSMC's 3nm process is a ready-made solution that customers can use immediately, an advantage Intel will continue to enjoy as long as Intel's plans to produce chips under contract for third parties come to fruition.
The Citibank report also believes that the capacity utilization of 8-inch wafers, especially those provided by UMC and ASE Group, will take longer to recover. The bank believes that 8-inch wafer utilization will not grow until the second half of 2024 due to sluggish demand for microcontrollers and other products.