The demand for artificial intelligence (AI) and the expansion of data centers have significantly bolstered Taiwan Semiconductor Manufacturing Company (TSMC), propelling its growth trajectory. Although TSMC primarily garners revenue from high-end processors, there is a noticeable resurgence in its legacy smartphone business.
The evolution of AI in recent years has had a profound impact on the tech industry, with nine of the ten largest companies by market capitalization heavily involved in this groundbreaking technology. Notably, TSMC has marked its presence on this elite list as the world’s premier chip foundry, responsible for approximately 90% of the most advanced semiconductors that power high-performance computing and AI applications.
The surge in interest for TSMC shares has largely resulted from an unprecedented demand for high-end computing chips. Since the beginning of this AI-driven boom in early 2023, TSMC’s market capitalization has increased by more than $1 trillion. Recent reports indicate that the majority of TSMC’s revenue is derived from chips used in high-performance computing (HPC), which accounted for 57% of the company’s sales in the third quarter.
Interestingly, HPC only emerged as TSMC’s leading segment in early 2022. For years prior, the smartphone market was the primary revenue generator for TSMC. However, economic pressures, including rising inflation, led consumers to retain their smartphones longer, causing a decline in sales. Recently, there has been an upswing in smartphone sales, which represent 30% of TSMC’s third-quarter revenue, aided by the successful release of Apple’s iPhone 17. Apple’s recent quarterly report highlighted a revenue record of $102.5 billion, representing an 8% year-over-year growth. TSMC is expected to benefit from this, as Apple is projected to contribute 24% of its revenue in 2024, indicating that the legacy smartphone segment is beginning to regain traction.
Despite these positive indicators and robust growth prospects, TSMC’s stock trades at a discount compared to the broader market, suggesting potential value for investors. With the dual engines of AI and recovering smartphone sales driving its performance, TSMC’s outlook remains optimistic as it continues to adapt to changing market conditions. The interplay between its cutting-edge technology and legacy business is likely to ensure a vibrant future for the company.