Taiwan Semiconductor Manufacturing (TSM.US) announced on Friday that its latest quarterly revenue grew by 35%, indicating stable global demand for artificial intelligence (AI) chips during the initial weeks of the Middle East conflict. The primary chip supplier for NVIDIA (NVDA.US) and Apple (AAPL.US) reported revenue of NT$1.13 trillion (US$35.6 billion) for the three months ending in March, surpassing the average analyst estimate of NT$1.12 trillion. Sales in March alone increased by 45%. This report may help alleviate market concerns that prolonged conflict in the Middle East could dampen demand for high-power-consuming AI data centers and devices like the iPhone. The conflict has already pressured global shipping routes and energy prices, with investors closely watching for potential impacts on the spending plans of major technology firms. Both Taiwan Semiconductor Manufacturing and its AI clients, such as NVIDIA, face questions about their ability to sustain current growth rates. After NVIDIA's explosive sales growth made it the world's most valuable company and Taiwan Semiconductor Manufacturing became Asia's most valuable by market capitalization, investors are seeking reassurance that the AI spending boom can continue. Earlier, Hon Hai Precision Industry (Foxconn), the world's largest electronics manufacturer and NVIDIA's primary server producer, also reported strong sales figures, with first-quarter revenue rising 30% year-over-year. Analyst Charles Shum stated, "Given the continued robust demand for 3-nanometer and 5-nanometer processes used in AI accelerators and networking chips, Taiwan Semiconductor Manufacturing's first-quarter results likely exceeded the midpoint of its guidance and market expectations. Favorable appreciation of the US dollar against the New Taiwan dollar will provide additional support. We anticipate gross margins will reach at least 65%, a record high." Shum added, "The focus of the earnings call is expected to be on management's views regarding demand for Android smartphones and PCs—specifically whether rising memory costs might trigger another round of inventory adjustments—as well as wafer fab operations and whether second-half margins could face pressure from disruptions in chemical or energy supplies, or related cost increases. Another point of interest is whether sustained multi-year demand for AI chips and the advantages of advanced manufacturing processes are sufficient to support raising the long-term gross margin target above 58%." Taiwan Semiconductor Manufacturing is scheduled to release its full first-quarter results on April 16. The chipmaking giant manufactures the vast majority of the world's most advanced semiconductors and is a key beneficiary of the global race to build AI infrastructure, serving companies like NVIDIA, AMD (AMD.US), and Broadcom (AVGO.US). Shares of Taiwan Semiconductor Manufacturing have risen nearly 30% this year, outperforming its major clients. However, large technology companies have struggled to meet investors' high expectations after Google (GOOGL.US), Amazon (AMZN.US), Meta (META.US), and Microsoft (MSFT.US) allocated $650 billion for AI spending this year. Despite NVIDIA, the global leader in AI chips, reporting a 73% quarterly revenue jump and providing an outlook that exceeded expectations, its stock has declined 1.4% this year.
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