TSMC Q3 2024 Earnings: What’s the Outlook for the World’s Biggest Chip Foundry?

TradingKeyOct 18, 2024 6:39 AM

TradingKey - The world’s largest manufacturer of semiconductors – Taiwan Semiconductor Manufacturing Co Ltd (NYSE: TSM) – is an integral part of the global chip ecosystem and supply chain. The company, also known simply as “TSMC”, reported its latest Q3 2024 earnings on Thursday (16 October) before the US stock markets opened.  

After a disappointing set of results from extreme ultraviolet lithography (EUV) machine producer, ASML NV (NASDAQ: ASML), earlier this week, all eyes were on TSMC’s third-quarter 2024 numbers to see whether there really was a broader slowdown in global demand for semiconductors.

So, for investors interested in the semiconductor space – and the demand from AI – what should they know about TSMC’s latest results and the outlook for the company? 

Net profit of over US$10 billion

With the enormous scale of TSMC benefitting from the AI wave of demand, its net profit in Q3 2024 surged 54% year-on-year to NT$325.3 billion (US$10.1 billion). That was much better than expected by the market. 

Likewise, TSMC’s net revenue of US$23.5 billion for Q3 2024 was up 36% year-on-year and came in higher than the top end of what the company had guided for back in July – of between US$22.4 billion and US$23.2 billion. 

The company also guided for its Q4 2024 revenue to be in a range of between US$26.1 billion and US$26.9 billion – well ahead of average analyst estimates of just under US$25 billion. At the mid-point of the range, that represents a 13% quarter-on-quarter increase from Q3 2024’s revenue and a 35% year-on-year increase from Q4 2023’s revenue.

Meanwhile, TSMC remains a cash flow machine as its free cash flow for Q3 2024 came to US$5.75 billion, up from the US$5.35 billion in Q2 2024 and more than double the US$2.12 billion in free cash flow for Q3 2023.

Cutting-edge chips for AI still in demand

While there were concerns over broader AI demand after poor results from ASML, the latest numbers from TSMC have temporarily quelled those fears. That’s because the company said that in a statement that its chip business was “supported by strong smartphone and AI-related demand for our industry leading 3nm and 5nm technologies”.

The 3 nanometre (nm) chip is the most advanced semiconductor in the world and is what’s required for advanced AI chips to compute all the processes necessary for things such as algorithms and large language models (LLMs).

TSMC saw both its 3nm and 5nm chips take a slightly larger share of overall revenue in the quarter – with the two types of semiconductors contributing 52% of revenue, up from the 50% for Q2 2024.

TSMC’s Q3 2024 revenue by semiconductor technology

A close-up of a pie chart

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Source: TSMC Q3 2024 earnings presentation

This shift towards more cutting-edge chips, and their larger contribution to TSMC’s overall revenue, indicates that demand for AI chips, and other cutting-edge chips, remains robust. TSMC CEO C.C. Wei also backed this up by stating that “the demand is real and I believe it’s just the beginning”.

Leading in the foundry space

Unlike its rivals in the foundry (fab) space – that refers to the business of manufacturing chips – TSMC has what appears to be an insurmountable lead in the production of semiconductors. Rivals Intel Corp (NASDAQ: INTC) and Samsung Electronics (LON: BC94) have struggled with delays to the construction of plants (Intel) and local rivals taking market share (Samsung)

In response to its earnings, TSMC’s New York-listed American Depository Receipts (ADRs) popped over 10% and finished the trading day up 9.8%. So far in 2024, TSMC shares are up 102%, while Intel shares are down 53.1% and Samsung’s London-listed Global Depository Receipts (GDRs) are down 27% over the same timeframe. 

That disparity in performance highlights the strong position that TSMC has built within the semiconductor ecosystem. Its latest set of results have also given investors encouragement that the upcoming earnings of large chip designers – like Nvidia Corp (NASDAQ: NVDA) – will be just as robust.


Disclaimer: The content of this article solely represents the author's personal opinions and does not reflect the official stance of Tradingkey. It should not be considered as investment advice. The article is intended for reference purposes only, and readers should not base any investment decisions solely on its content. Tradingkey bears no responsibility for any trading outcomes resulting from reliance on this article. Furthermore, Tradingkey cannot guarantee the accuracy of the article's content. Before making any investment decisions, it is advisable to consult an independent financial advisor to fully understand the associated risks.

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