Nvidia’s most important supplier is posting record profits thanks to strong demand for AI. This is the result of Taiwan Semiconductor Manufacturing Company (TSMC)’s latest earnings release, with TSMC using the opportunity to predict that major customers like Jensen Huang’s giant semiconductor manufacturing company will reduce spending in 2025. He said he did not think he would. TSMC stock rose 5%. On Thursday, the company announced a 57% increase in net income for the final quarter of 2024, and a 37% increase in sales to nearly $27 billion.
Nvidia’s graphics processing units are at the heart of the AI deal, but the manufacturing of those chips is outsourced to TSMC, the king of the so-called “foundry business.” According to the US Department of Commerce, NVIDIA sells nearly 90% of the world’s GPUs, while Taiwanese companies enjoy a similar market share in manufacturing the world’s most advanced AI chips. Nvidia stock is up about 140% over the past 12 months, and TSMC’s stock is not far behind, up more than 110% over the same period.
TSMC CEO CC Wei said, “We expect AI accelerators to be the strongest driver of growth for our (high performance computing) platform and the largest contributor to our overall revenue and profit growth over the next few years.” said.
Considered a bellwether for the entire AI industry, NVIDIA’s earnings release was a major news event, even inspiring quarterly watch parties among retail investors. TSMC’s report may not get a lot of attention, but the company’s financial results are also a lens into industry sentiment.
“Almost every AI innovator is collaborating with TSMC,” Wei told analysts last quarter. “So we probably have the deepest and broadest perspective of anyone in this industry.”
The semiconductor benchmark index, known as SOX, was up 2% as of early Thursday afternoon. Dutch company ASML, which makes equipment vital to the semiconductor industry, saw its stock price jump more than 5% on the back of recent explosive profits from its biggest customer, TSMC. Nvidia stock soared in premarket trading, but fell more than 1% in the second half of the session.
America’s biggest tech companies, the so-called Magnificent Seven, will face intense scrutiny from investors this year over whether their massive investments in AI are starting to yield returns. Asked if he thought the wave of spending would continue into last quarter, Wei expressed confidence that it would be sustainable. He said Thursday that the company expects AI-related sales to double this year after tripling in 2024.
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