Shares of semiconductor stocks advanced on Thursday after the first major earnings report of the season from Taiwan Semiconductor Manufacturing (TSM 1.76%). The industry is watching demand for chips closely and TSMC is expecting 20% revenue growth for the year.
Not only did Taiwan Semiconductor's stock jump 8.8% in early trading, but Broadcom (AVGO +1.01%) rose 3.9%, Intel (INTC +1.33%) was up 3.3%, and Advanced Micro Devices (AMD +0.92%) had climbed 5.3%. Shares are up 7.1%, 3.2%, 1.8%, and 0.5% respectively at 12:30 p.m. ET.
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Key Data Points
The demand picture looks positive
In a macro sense, investors were interested in how demand for semiconductors looks overall. The industry can be very cyclical and there was a decline in demand in 2023 as fewer smartphones and PCs were sold. Some companies were also working through excess inventory, hurting demand for manufacturers like TSMC.
TSMC's management said artificial intelligence is driving improved demand for advanced chips and it expects that to drive the 20% increase in revenue in 2024. For context, revenue was down 8.7% in 2023, so this would be bouncing off a recent low.
Extrapolating to the entire chip industry
The reason Broadcom, Intel, and AMD are up is investors are simply extrapolating TSMC's success to the rest of the industry. TSMC doesn't make its own chips, it's an outsourced manufacturer to other companies, so if the chipmaker has demand then it makes sense that chip designers have demand.
TSMC's bullishness on artificial intelligence is also worth noting for Intel and AMC. The past year has been dominated by AI chips from Nvidia, but the market is so big and developing so quickly that everyone is going to introduce AI solutions over time. That could be a tailwind for companies like Intel and AMD.
An expensive turnaround
I don't think there's any question this year will again be dominated by AI and TSMC is pointing in that direction. But investors need to be aware that all of these companies are getting relatively expensive and if the AI market slows down later in the year the narrative could change.
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Intel, in particular, still has a lot of work to do to turn around its business. In many ways, it's trying to copy TSMC's foundry model but it also has a chip design unit, so it's playing both sides of the market. Having legacy cash flows to lean on will help, but this isn't a market leader the way it was two decades ago.
This is the first real data point for the semiconductor industry in earnings season and more information will come out over the next month. The bounce in shares is nice today, but be aware that not all companies will follow TSMC's direction as more granular data comes in.
