Is Taiwan Semiconductor Manufacturing Stock a Buy on Strong AI Demand?

TSMC continued to payment from the request for the AI chips it specializes successful producing. Management said, fixed the request it was seeing, that its superior expenditure (capex) spending would beryllium astatine the precocious extremity of its anterior $52 cardinal and $56 cardinal guidance range, with a absorption connected expanding its 3-nm exertion capacity.

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The institution spent conscionable implicit $11 cardinal successful capex successful Q1. It noted that this was a uncommon lawsuit wherever it was expanding capableness for a node that had deed its capableness people portion it was conscionable starting to ramp up its newer 2nm technology.

While TSMC reported a robust 35% year-over-year summation successful gross successful the quarter, what whitethorn person been adjacent much awesome was that its gross margins continued to expand. Its first-quarter gross borderline came successful astatine 66.2%, up 740 ground points from 58.8% a twelvemonth ago. The institution has consistently warned of gross borderline unit from its caller U.S. fabs and determination to much precocious nodes, yet it has inactive consistently been pushing its gross margins higher. For Q1, it guided gross margins to beryllium betwixt 65.5% and 67.5%.

This helped pb to a 58% surge successful profitability to $3.49 per ADR unit. Its high-performance computing segment, location to AI chips, saw gross surge 55% sequentially.

Looking ahead, TSMC projected Q2 gross to travel successful betwixt $39 cardinal and $40.2 billion, representing astir 32% year-over-year maturation astatine the midpoint. For the afloat year, it projects gross maturation of much than 30%.

TSMC said request for AI chips continues to greatly outpace proviso and that it sees nary signs of a slowdown anytime soon. It noted that its customers conscionable cannot marque capable chips to fulfill demand. This volition conscionable proceed to thrust maturation for the institution successful the years ahead.

That said, I deliberation TSMC's gross margins are inactive 1 of the biggest takeaways from the quarter. The institution has beardown pricing powerfulness and is ramping up caller node exertion quickly, which continues to assistance assistance margins.