This AI stock has had impressive gains in 2024, and could rise after its next quarterly report.
Artificial intelligence (AI) has played a major role in lifting semiconductor stocks over the past two years, as evidenced by the massive 131% rise in the PHLX semiconductor sector index during this period. The good part is that the spread of this technology will lead to stronger growth in this market, as AI adoption moves from data centers to high-end devices such as smartphones, personal computers, automotive applications, etc.
For example, the market for chips used in smartphones is expected to jump from $104 billion in 2023 to $146 billion next year. On the other hand, spending on PC semiconductors could jump to $107 billion in 2025 from $89 billion last year, while spending on automotive market segments is expected to jump to $104 billion next year from $79 billion. Last year. Meanwhile, spending on semiconductors deployed in AI servers and data centers is expected to jump from $78 billion in 2023 to $136 billion next year.
For investors looking to cash in on all these fast-growing semiconductor end markets that have received a major boost thanks to artificial intelligence, Taiwan Semiconductor Manufacturing (TSM 0.79%), otherwise known as TSMC, appears to be the perfect bet.
The foundry giant serves all the sectors discussed, and the latest news from the company reinforces the fact that AI has become a powerful driver of the company’s growth. Let’s look at the reasons.
TSMC is on track to deliver another impressive quarterly report
TSMC has just released its sales data for September, and the company has reported an impressive year-over-year increase of nearly 40% in its monthly revenue to NT$251.8 billion. If we add the monthly revenues for July, August and September, TSMC’s third-quarter revenue will reach nearly NT$760 billion, a staggering 39% jump from the same period last year.
This figure is higher than analysts’ estimates of third-quarter revenue of NT$748 billion. So, it looks like TSMC will beat Wall Street’s expectations when it releases third-quarter results on October 17. Analysts had expected $1.80 per share in earnings for the company, a 40% jump from the same period last year, but better-than-expected revenue growth is likely to translate into stronger net earnings gains.
Another thing worth noting is that TSMC’s revenue in the first nine months of 2024 increased by 32% from the same period last year. This means that TSMC is on track to exceed the 26% revenue growth to $87.2 billion that analysts expect the company to achieve in 2024. More importantly, TSMC is expected to maintain healthy growth levels over the next two years as well.
TSM revenue estimates for current fiscal year data by YCharts
However, don’t be surprised to see that TSMC’s revenue growth exceeds Wall Street expectations. That’s because the company is one of the most important pick-and-roll operations in the massive AI space. It manufactures and manufactures chips for a group of zero-chip makers such as Nvidia, AMD, Qualcomm, Broadcom, and Marvell Technology.
Better yet, chipmakers with their own manufacturing plants, such as Intel, are also turning to TSMC to leverage the latter’s advanced chip manufacturing processes to produce more efficient and powerful chips. But that’s not where TSMC’s AI opportunity ends. The company also manufactures chips for Apple, putting it in a position to make the most of the growth in sales of AI-powered smartphones.
Now, a closer look at the customers discussed will show that TSMC is one of the best ways to capitalize on the AI chip boom in various sectors. For example, Nvidia, AMD, and Intel are trying to make the most of opportunities in AI accelerators. Nvidia is staying away from this market for now, making chips that use TSMC processing nodes to deliver faster performance and lower power consumption compared to competitors.
Qualcomm, AMD, and Intel are present in the AI-enabled PC market. Likewise, Qualcomm and Apple offer ways in which TSMC can capitalize on the smartphone space. Finally, Marvell and Broadcom allow TSMC to tap into another fast-growing niche of AI semiconductors in the form of dedicated AI chips. Simply put, it doesn’t matter which of these companies wins more market share and ends up dominating their respective fields – TSMC is likely to be the ultimate winner.
For this reason, TSMC’s advanced packaging technology used to produce AI chips has been sold until 2025. As a result, the company is expanding its AI chip production capacity a year earlier than originally scheduled, according to Morgan Stanley. This should ideally allow TSMC to make more chips, fulfill more orders, and achieve stronger revenue and profit growth.
Buying the stock before October 17 is a no-brainer
This discussion shows that TSMC is carrying great momentum heading into its third-quarter earnings report scheduled for October 17. There’s a strong chance it will beat consensus estimates and deliver stronger-than-expected guidance for the fourth quarter, all of which could give the stock a nice shot in the arm.
TSMC stock has jumped 77% this year already, and looks poised to finish the year strong. With this AI stock trading at an attractive 22 times forward earnings even after its stellar run this year, buying it seems like a no-brainer right now considering it looks set for further upside.
Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Nvidia, Qualcomm, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom, Intel, and Marvell and recommends the following options: Short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.
