TSMC hits record profits, why TSMC stock price falls: Second-quarter profits soar 77%, Arizona invests $100 billion explained
TSMC manufacturing company Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest contract chip manufacturer, announced on Thursday that its second-quarter profit increased by 77.4%. The strong results were better than analysts’ expectations and indicate that demand for artificial intelligence chips remains very strong.
TSMC’s second-quarter revenue was NT$1.27 trillion (US$39.45 billion). This is TSMC’s fifth consecutive quarter of record-breaking profit. Profit also increased 23.4% from the previous quarter. Looking ahead, TSMC expects third-quarter revenue to be between US$44.6 billion and US$45.8 billion. The company also expects third-quarter operating margins to remain between 56% and 58%.
Arizona invests $100 billion
TSMC Chairman Wei Zhongxian said that demand for artificial intelligence-related chips remains very strong, according to the company’s earnings call. Wei explained why the company is investing $100 billion in Arizona. According to CNBC, he said: “This is to build several or more semiconductor logic fabs for two-nanometer MP (mass production) technology, as well as advanced packaging fabs to support the strong demand from our major US customers for many years.”
Chief Financial Officer Wendell Huang said TSMC will also increase its capital expenditure budget this year to $60 billion to $64 billion. Huang said the higher spending will help the company expand production to meet customer demand, CNBC reported. The company’s revenue increased to NT$1.27 trillion from NT$933.79 billion in the same period last year, an increase of 36%.
Advanced chip technologyIncluding 7-nanometer and smaller chips, they account for 77% of TSMC’s total wafer revenue, the company said. CFO Wendell Huang said that among these advanced chips, 5-nanometer technology contributed 33% of second-quarter revenue, while 3-nanometer technology contributed 30%.
TSMC said its high-performance computing business, including artificial intelligence chips, accounts for 66% of its platform revenue. Smartphones accounted for 22% of platform revenue, while the Internet of Things (IoT) contributed 5%. According to CNBC, TSMC produces chips for major technology companies such as Nvidia, Apple and Broadcom.
Also read: Why did Morgan Stanley’s stock price fall today despite record earnings and revenue?
Why is TSM stock falling despite such strong earnings?
Although TSMC reported record profits, its U.S.-listed shares fell more than 4% in premarket trading. Investors weren’t disappointed by the earnings themselves. Instead, they worry about whether the company can continue to achieve such stellar growth.
The market was already expecting a very strong AI-driven quarter, so the impressive earnings were already priced into the stock price. INDmoney said after the results, investors turned their attention from current profits to future challenges and expenses. According to INDmoney, a major concern is TSMC’s massive investment plans, including an additional $100 billion in Arizona.
Investors are now watching how much cash the company needs to build these expensive semiconductor factories. According to INDmoney, while these factories can help TSMC grow in the future, they will also require huge expenditures in the coming years. Investors question whether future profits will be enough to justify the company’s high valuation. Rising investment costs. In short, the company has delivered excellent financial results, but investors are hoping for stronger signs that growth will continue at the same pace in the future.
What analysts say
SemiAnalysis analyst Sravan Kundojjala said TSMC still has strong pricing power. “On net, they have much more pricing power than they are currently exercising,” he said, according to CNBC. Kundojjala said TSMC is raising prices cautiously rather than aggressively. He believes the company wants to protect its healthy profit margins without putting too much pressure on customers.
The analyst also warned that the AI ​​boom was creating challenges for some of TSMC’s other businesses. Rising memory prices and tight supply have hurt price-sensitive markets other than consumer electronics and artificial intelligence, he said.
TSMC continues to benefit from the global artificial intelligence boom, posting record profits, strong revenue growth and higher future forecasts. However, the company’s shares fell as investors are now focused on future expectations, expensive expansion plans and whether TSMC can continue to grow rapidly to justify its premium valuation, according to INDmoney.
So, TSMC’s business remains very strong, but the stock market is looking beyond today’s profits and judging the company’s long-term growth and spending plans.
