TSMC: AI Powerhouse with NVIDIA's Light

Taiwan Semiconductor Manufacturing Company (TSMC) recently addressed the issue of AI's inability to fill the inventory gap and offset delayed demand in consumer electronics like PCs and smartphones. Additionally, growth in automotive and IoT sectors has stalled, resulting in a cautious market atmosphere.

However, TSMC's prospects remain bright with strong support from its top ten AI and HPC clients. The company has secured long-term orders from NVIDIA and new orders from Intel, making it the preferred foundry for major chip manufacturers. As a result, TSMC's outlook for 2024 is highly optimistic.

During a recent conference, TSMC disclosed several updates, including a 10% downward revision of its annual revenue, impacted by the mass production of 3-nanometer technology, and delays in constructing a new US factory, pushing production schedules back to 2025.

While AI demand continues to thrive, other application sectors are not meeting expectations, causing inventory clearance to be extended until the end of the year. TSMC had initially anticipated clearing inventory in Q2, affecting the electronics and semiconductor supply chain's growth in the latter half of the year.

Despite these challenges, TSMC has delivered positive news for the AI sector, highlighting the significance of CPUs, GPUs, and AI accelerators for training and inference functions, contributing about 6% to TSMC's total revenue in 2023, equivalent to approximately 120 billion New Taiwan Dollars.

TSMC is bullish about AI demand over the next five years, expecting a nearly 50% compound annual growth rate. This would significantly increase TSMC's share in revenue each year, making a considerable financial impact.

The company recognizes that generative AI necessitates enhanced computational power and interconnect bandwidth, leading to increased semiconductor content. TSMC's advanced technology and strong wafer manufacturing design ecosystem position it as a critical player in the AI supply chain.

While remaining cautious in the short term, TSMC is highly confident about its prospects beyond 2023. With support from the 5G and HPC industries, the company envisions long-term growth.

TSMC also anticipates fulfilling significant orders from Intel as it undergoes internal restructuring, with design departments expected to expand, leading to increased profits. Their collaboration with Intel on 3-nanometer technology is set to expand comprehensively by 2024.

Furthermore, NVIDIA's consistent large orders have propelled it up the customer ranking, driving the demand for CoWoS technology beyond supply. TSMC is actively expanding production to meet this demand and collaborate with various manufacturers. The estimated 2024 production capacity is set to double, benefiting the server supply chain and related companies.

In conclusion, TSMC faces short-term challenges but remains confident about its future growth prospects, especially in the booming AI sector. Their strategic partnerships with leading companies like NVIDIA and Intel strengthen their position as a vital player in the semiconductor industry.