Just moments prior to TSMC's earnings call, the company disclosed its financial performance for the second quarter of 2024. TSMC reported consolidated revenue amounting to NTD 673.51 billion. The net income for the quarter ended June 30, 2024, totaled NTD 247.85 billion. Diluted earnings per share were reported at NTD 9.56 (equivalent to USD 1.48 per ADR unit).

Compared to the same period last year, TSMC reported a 40.1% increase in second quarter revenue, with net income and diluted EPS also rising by 36.3%. Quarter-over-quarter comparisons with the first quarter of 2024 showed a 13.6% increase in revenue and a 9.9% increase in net income. All financial figures were prepared in accordance with TIFRS on a consolidated basis.

In the second quarter, sales of 3-nanometer chips rose to 15% of total wafer revenue from 9% in the first quarter. Additionally, 5-nanometer chips represented 35% and 7-nanometer chips represented 17% of total wafer revenue. Advanced technologies, encompassing 7-nanometer and more advanced chips, contributed 67% to total wafer revenue during this period.

1. Revenue: 673.51 billion New Taiwan dollars ($20.82 billion), vs. NT$657.58 billion expected
2. Net income: NT$247.85 billion, vs. NT$238.8 billion LSEG SmartEstimate weighted toward forecasts from analysts who are more consistently accurate

AI chip boom continues

So far this year, TSMC's Taiwan-listed shares have surged by almost 70%, driven by soaring demand for advanced chips used in AI applications.

“The demand for generative AI is surging in the cloud and at the edge. TSMC’s N3 process boasts good yield rates and well-managed production lines,” Brady Wang, associate director of Counterpoint Research, said on Friday ahead of the results.
“The demand is so high, I have to work very hard to meet my customers’ demand,” said Wei. 

TSMC tests customers’ chips, and it’s found the machine-learning that they enable useful in boosting its own productivity, although it too has to queue for scarce AI products, he said.

The company is likely to meet its gross margin target of 53% or above, said Wei. “My customers are doing well so we should do well also,” he said.

Bloomberg reported on Wednesday that the Biden administration is contemplating additional trade restrictions on shipping chip manufacturing equipment to China.

Following this news, ASML, a Dutch company that produces the machines used by TSMC for chip manufacturing, saw a 1% decline after it issued cautious sales guidance for the current quarter on Thursday.

The expecting Q3 revenue

TSMC announced on Thursday that it anticipates third-quarter revenue to potentially increase by up to 34% compared to the previous year. This projection follows the company's posting of a quarterly net profit that exceeded market expectations. As the world's largest contract chipmaker and a key supplier to Apple Inc and Nvidia, TSMC has capitalized on the growing adoption of AI, which has bolstered its resilience amidst a slowdown in electronics demand spurred by the waning effects of the pandemic.

Revenue for the current quarter is expected at $22.4-$23.2 billion compared with $17.3 billion in the year-ago quarter, TSMC told an earnings conference. Capital expenditure in the second quarter was $6.36 billion, TSMC said, compared with $5.77 billion in the first quarter.

Nvidia shares rose after TSMC says AI chip demand remains strong

Leading role in AI

In June, Nvidia introduced its latest generation of AI chips named "Rubin," following the earlier announcement of its "Blackwell" microchips in March this year.
Nvidia executives have outlined a shift to an annual release cycle for new AI chips, departing from the previous biennial schedule. Nvidia continues to dominate the AI chip market, holding a commanding 75% share globally.

The rebound in Nvidia's stock

Nvidia's shares surged by approximately 3% in Thursday's trading session, recovering from a 7% drop the previous day influenced by geopolitical worries triggered by remarks from U.S. presidential candidate Donald Trump. Despite a 2% decline in NVDA over the past month following its stock split, Wall Street analysts continue to express strong optimism about the company and its future. Analyst upgrades for Nvidia stock appear almost daily, underscoring the bullish sentiment surrounding its prospects. In addition to its AI chips and processors, analysts predict Nvidia will benefit from increasing sales of its AI servers. It's noteworthy that Nvidia maintains a "strong buy" rating from 41 analysts covering the company.

The rebound in Nvidia's stock was driven by TSMC's announcement on Thursday affirming robust demand and limited supply for advanced AI chips. TSMC, which produces these chips for Nvidia, indicated ongoing high demand amid constrained supply conditions.

With Nvidia’s stock significantly impacting the overall artificial intelligence (AI) rally, attention is on the bulls to avoid further pullbacks. Their target remains to reclaim the $120 resistance level.