Nvidia (NASDAQ: NVDA) has long been synonymous with the pinnacle of chipmaking prowess in the realm of artificial intelligence (AI). The company’s cutting-edge GPUs, vital for processing intricate AI tasks within data centers, have spurred its stock to an astounding 1,720% surge over the past five years. Yet, as the AI market burgeons, investors are now scrutinizing whether other chip stocks can emulate Nvidia’s meteoric rise.
Enter Taiwan Semiconductor Manufacturing (NYSE: TSM), the globe’s foremost contract chipmaker and the powerhouse behind Nvidia’s premier GPUs. Let’s delve into its operational model, exposure to the AI sector, and long-term growth potential to discern if it could emerge as the next Nvidia.
TSMC stands tall as the world’s largest and most advanced third-party chip foundry, boasting a clientele including industry giants like Nvidia, AMD, Qualcomm, and Apple. With its unrivaled capability in producing the smallest, densest, and most energy-efficient chips, TSMC holds the reins, manufacturing approximately 90% of the globe’s most sophisticated chips. This dominant position makes TSMC not just a bellwether but the linchpin of the semiconductor industry.
Although competing against heavyweights like Samsung and Intel, TSMC maintains a lead in the chip manufacturing race, courtesy of its early adoption of ASML’s extreme ultraviolet (EUV) lithography systems. These cutting-edge systems, pivotal in etching circuit patterns onto silicon wafers, have cemented TSMC’s technological supremacy.
But how does TSMC fare in terms of growth? Undoubtedly, its trajectory mirrors the cyclical nature of the semiconductor market, weathering downturns in 2019 and 2023. However, its market dominance and pricing power have facilitated expansion in its gross margin, showcasing resilience amid market fluctuations.
In the first quarter of 2024, TSMC derived 46% of its revenue from the high-performance computing (HPC) sector, encompassing CPUs and GPUs, with customers like Nvidia and AMD. An additional 38% stemmed from the smartphone market. Notably, within the HPC domain, the surge in the AI market offset sluggishness in the PC segment over the preceding year. However, the smartphone sector remains stagnant as the 5G upgrade cycle wanes.
Looking ahead to 2024, TSMC anticipates a revenue growth rate in the low to mid-20% range, fueled by the burgeoning AI market, stabilized PC arena, and a prospective resurgence in the smartphone domain amid a robust macroeconomic environment. Analysts project a commendable 21% uptick in both revenue and earnings for the full year, underscoring solid growth prospects.
