What happened
Shares of the world's largest semiconductor foundry, Taiwan Semiconductor Manufacturing (TSM 1.75%), were rising on Monday, up 4.1% in the day's trading.
While the overall technology sector, especially semiconductors, had a strong performance today, TSMC was particularly strong, perhaps owing to news from last week's annual shareholder meaning, the opening of a new advanced packaging facility, and continued optimism over demand for leading-edge AI chips.
NYSE: TSM
Key Data Points
So what
Last week at its annual meeting, TSMC management lowered its revenue expectations to a slight 1% to 6% decline in 2023. However, management also noted very strong demand for artificial intelligence (AI)-related chips, and especially tight capacity for advanced packaging needed for 3D-stacked CPU-GPU AI chipsets.
Following the shareholder meeting, two bits of positive news came over the wires on Friday, which could have led to investor enthusiasm today. First, TSMC reports revenue on a monthly basis, and it reported May revenue last Friday, showing the strongest revenue numbers since January. In May, revenue surged 19.4% over April. While the year-over-year numbers still showed a 4.9% decline, that was a marked improvement over April's 14.3% year-over-year decline.
Also on Friday, TSMC announced the opening of the Advanced Backend Fab 6, which will support 1 million 12-inch wafers per year and greatly expand TSMC's CoWoS (chip-on-wafer-on-substrate) advanced packaging capacity, which is crucial technology in producing leading-edge chips made with a "chiplet" architecture. TSMC VP of operations Jun He said in a press release: "Chiplet stacking is a key technology for improving chip performance and cost-effectiveness. In response to the strong market demand for 3D IC, TSMC has completed early deployment of advanced packaging and silicon stacking technology production capacity, and offers technology leadership through the 3DFabric platform."
Now what
The semiconductor market is projected to be down in the mid single digits this year, according to TSMC management; however, investors in this cyclical sector tend to be forward-looking, with stocks often moving based on expectations of results six to 18 months out.
The consumer electronics bear market could be at or near a bottom. Now, with strong demand for new AI applications appearing to accelerate, demand for high-performance computing could very well pull the sector out of its slump soon. And eventually, the badly hit consumer PC and smartphone sectors should recover from their historic downturns over the past year. Putting those two together, the prospects for semiconductors in 2024 seem much brighter.
As the world's largest and technologically dominant outsourced foundry, TSMC should benefit handsomely, no matter which semiconductor company wins the AI race, as TSMC will likely manufacture the winner's chips.
At just 17 times earnings, TSMC still looks like the conservative way to play the growth of AI.
