If there were any lingering doubts that artificial intelligence (AI) was in a bubble, the recent quarterly earnings report from Taiwan Semiconductor Manufacturing (TSM 4.96%) should help assuage investor fears. While the report itself was strong, with the semiconductor contract manufacturer seeing its revenue climb 26% to $33.7 billion, it was its guidance that should get investors excited.
NYSE: TSM
Key Data Points
First, TSMC forecast that its first-quarter revenue would grow by 38% at the midpoint of its guidance and that its full-year revenue would rise by 30%. More importantly, the company surprised investors when management decided to up its capital expenditure (capex) this year to between $52 billion and $56 billion, up from around $41 billion in 2025.
When building out new fabs (chip manufacturing facilities), foundries like TSMC need to be very careful. An underutilized fab in an unprofitable fab, so the company needs to make sure that its added capacity is not going to just meet short-term demand, but lasting demand.
As such, TSMC management did not take the decision to ramp up its capex spending lightly. The company went out and not only talked to its customers, like Nvidia and Broadcom, but also to their customers, like the big cloud computing companies. It wanted proof that cloud computing providers were getting strong returns on their data center investments, and that there was continued long-term demand for their infrastructure-as-a-service offerings. TSMC management was evidently satisfied with what they heard, deciding to nicely ramp up its own chipmaking capacity.
Image source: Getty Images.
Numerous AI winners
By having a virtual monopoly on the manufacturing of advanced AI chips, TSMC is poised to continue to be a winner from the ongoing AI boom. Meanwhile, semiconductor equipment manufacturer ASML will be another big beneficiary. ASML has a monopoly on the extreme ultraviolet lithography (EUV) machines required to make advanced chips, and as TSMC boosts its capex spending, a nice chunk of that will go toward ASML's machines.
Nvidia, whose graphics processing units (GPUs) are the main chips used to power AI workloads, will also continue to profit handsomely from increasing AI infrastructure demand. So will other chip companies, including Nvidia competitor Advanced Micro Devices and Broadcom, which is helping companies make custom AI chips. It's also good for memory makers like Micron, as AI chips need high-bandwidth memory (HBM) to perform optimally, and other data center component makers.
The cloud computing industry should also benefit, with the leading companies indicating that they see no sign of demand slowing and that they are indeed getting strong returns on their data center investments. This includes the big three cloud providers -- Amazon, Microsoft, and Alphabet -- along with Oracle and neocloud providers like CoreWeave and Nebius Group.
Overall, the AI market looks far from a bubble; it looks like the party is still just getting started.
