Big tech companies are spending hundreds of billions of dollars building out new data centers for artificial intelligence (AI). The bulk of that spending is going toward semiconductors. That includes server racks full of graphics processing units (GPUs) and custom AI accelerators and networking equipment with the most cutting-edge networking chips inside.
And demand for AI-related silicon may continue to grow for the foreseeable future. McKinsey estimates global spend on AI chips and computing hardware for data centers will surpass $3 trillion in 2030.
The near term is just as bright. And one of the leading semiconductor stocks just shared some news that suggests it could produce another blowout quarter, surpassing its own sales guidance and analysts' expectations.
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TSMC: The semiconductor titan behind the AI boom
There's a lot of debate about the future of AI, how the biggest companies will train their models, and what chips they'll use for inference. Behind all of that stands a single company poised to benefit no matter who wins the next big contract for AI development.
Taiwan Semiconductor Manufacturing (TSM +6.30%), known as TSMC, is the largest semiconductor foundry in the world. It commands over 70% of all chip manufacturing spending thanks to its leading-edge process technology and advanced packaging capabilities. It takes contract work from all over the world and with the biggest companies like Nvidia (NVDA +5.93%) and Apple (AAPL +1.18%).
The Taiwanese company releases sales data every month, and it recently updated investors with its August sales report. The data show the company is well ahead of pace toward its guidance of 939.6 billion New Taiwan dollars in sales this quarter. For the first two months of the period, it's already produced sales of NT$658.9 billion ($21.85 billion). Historically, July and August sales account for about 65% of third-quarter sales, but they already surpass 70% of TSMC's revenue guidance.
There are a few things that could be leading to the strong performance. Tariff concerns could have pulled in some orders from September to July and August. The Trump administration has threatened tariffs on semiconductors, but TSMC appears to have appeased the U.S. government with its pledge to build out more facilities in Arizona. It's currently exempt from the 100% tariff on semiconductor imports.
On the other hand, TSMC could have benefited from stronger-than-expected demand continuing to push sales of its leading-edge node. Nvidia resumed production of its H20 units designed for the Chinese market, but it stopped again as the Chinese government urged local companies not to buy them. Still, other AI chipmakers using TSMC's foundry have shown strong growth in demand for their chips. Meanwhile, Apple started ramping up production of new chips for its iPhone 17 launch.
Overall, investors should expect September sales to look more similar to its July and August sales average rather than a steep drop. As a result, third-quarter sales results should surpass current analyst expectations.
NYSE: TSM
Key Data Points
The long-term growth engine for TSMC
TSMC is well-positioned to maintain its dominant position as AI chip spending soars over the next half-decade. Management expects to grow revenue at a compound annual rate of 20% per year from 2024 through 2029, but even that number may be underestimating its potential.
TSMC is the top manufacturer for chipmakers that want the most cutting-edge chips, and its technology lead could grow wider over the coming years. That's because it already dominates the industry with over 70% of total spending on chip fabrication. That gives it a ton of capital to plow into research and development, to push forward its leading-edge node technology and its advanced packaging capabilities. In turn, its next-generation technology drives future demand and provides practically no alternative for those seeking the best technology.
The strength of TSMC's technology lead is seen in its reported pricing for its next-generation 2nm process. It's reportedly charging $30,000 per wafer, up 50% from its 3nm process. That could be followed by another 50% increase in wafer pricing for its forthcoming 1.6nm process. TSMC is also reportedly raising the price on its older technology by 5% to 10% in 2026.
Those significant price increases should enable TSMC to not only grow its revenue quickly over the next few years, but also be able to maintain its high gross margin profile even as it ramps up its newest technology. That should support very strong earnings growth for the business and its investors.
Despite that potential, the stock currently trades for 26.6 times forward earnings expectations. And if TSMC can continue to outperform those earnings expectations, as its most recent financial update suggests, that could prove an absolute bargain of a price for investors right now.
