Earnings | TSMC Q2 Beats on Robust AI Demand! Lead Rebound Tonight?

$Taiwan Semiconductor Manufacturing(TSM)$ , the world's leading chip foundry, announced its Q2 earnings just now, significantly surpassing market expectations, with Tiger Securities' share price soaring 3% in the overnight session.

1. Revenue and Profit

Digging deeper, TSMC's Q2 revenue hit $20.82 billion, a 32.8% year-on-year increase, exceeding analyst expectations of $20.2 billion:

Since TSMC had already disclosed its revenue, the spotlight fell on profitability and Q3 guidance.

In terms of gross margin, TSMC achieved 53.2% in Q2, surpassing the upper limit of the management's guidance range of 51%-53% and analysts' expectation of 52.6%.

2. Technology Node

By technology node, 3nm processe contributed 15% of revenue, while 7nm and below advanced processes accounted for a staggering 67% of total revenue, a record high for TSMC in a typically slower second quarter.

As 3nm processe ramps up, the revenue share from advanced processes will climb even higher, suggesting ample room for TSMC's gross margin to expand.

This surge in advanced process revenue was fueled by robust AI demand, driving a significant increase in HPC (High-Performance Computing) revenue, which accounted for 52% of total revenue in Q2, a new record and a 28% sequential growth.

HPC revenue primarily stems from GPUs and CPUs, while smartphones contributed 33%, experiencing a 1% sequential decline due to seasonal factors.

In addition, IoT, autonomous driving, and DCE segments had lower revenue shares with less significant impact on overall growth.

3. Q3 Guidance

Looking ahead to Q3, TSMC forecasts revenue in the range of $22.4 billion−$23.2 billion, blowing past analysts' estimate of $22.53 billion. The expected gross margin range of 53.5%-55.5%, which also tops analysts' prediction of 52.5%!

Moreover, TSMC has upped its 2024 capital expenditure from $28 billion−$32 billion to $30 billion−$32 billion. TSMC's capital spending in Q2 reached $6.36 billion, marking two consecutive quarters of sequential growth, with projections for the second half to far exceed the first.

Yesterday, $ASML Holding NV(ASML)$ 's earnings miss in Q3 guidance sent semiconductor giants like TSMC plunging.

However, ASML, as a semiconductor equipment supplier at the end of the AI supply chain, relies on booming sales of $NVIDIA Corp(NVDA)$ 's AI GPUs to drive TSMC's expansion and, in turn, equipment purchases.

4. AI Demand

Based on TSMC's earnings call, demand remains robust and supply is tight. With the increase in capital expenditure floor, ASML's performance is poised to gradually improve. Yesterday's plunge was simply a case of analysts' overly ambitious expectations.

As TSMC's 3nm processe revenue share continues to climb, and with 2nm processe slated for 2025, demand is expected to stay strong. Once advanced processes stabilize post-ramp, TSMC's gross margin could hit historic highs.

TSMC's unrivaled technology positions it as the cornerstone of AI, with both NVIDIA and $Advanced Micro Devices(AMD)$ relying on its manufacturing for their AI chips.

As for Trump's presidency and its potential impact on Taiwan-US relations, it's a non-issue that won't dent TSMC's performance.