TSMC Q4 Earnings Preview: Anticipating Strong Results Amid AI Demand Boom

Recent highlights for TSMC include the accelerated adoption of its 3nm and 5nm process nodes and significant strides in advanced packaging technologies. Furthermore, the company's strategic price hikes and sustained high utilization rates for cutting-edge nodes bolster its growth narrative, setting a positive tone for the upcoming earnings release.

TSMC's stock has performed impressively in recent months, reaching $222.20 as of January 6, 2025, reflecting a 95.3% year-over-year increase. The stock has been buoyed by strong sales growth in advanced nodes, particularly the 3nm technology, and an optimistic outlook for 2025.

Despite some headwinds, such as geopolitical uncertainties and mature-node utilization challenges, the market remains optimistic about TSMC's ability to deliver on its promises. Key drivers include the growing demand for AI accelerators and cryptocurrency mining chips, along with strategic pricing measures implemented across its leading-edge processes.

Analysts project TSMC's Q4 revenue to reach the upper end of its guidance at approximately NT$854.67 billion ($26.5 billion), driven by strong AI-chip demand and sustained utilization rates for its N3 and N5 nodes. Gross margins are expected to hover around 60%, reflecting improvements in pricing and node yields. For 2025, financial institutions forecast a 36.63% revenue growth in USD terms, with EPS projected at NT$73.03, marking a significant improvement from previous years.

TSMC defines AI semiconductors as including AI server CPUs and AI accelerators focused on training and inferencing, excluding networking, edge, or on-device AI. In 2024, AI semiconductors are expected to contribute a mid-teens percentage of TSMC's total revenue. While many investors associate TSMC's AI foundry services primarily with Nvidia, it is estimated that Nvidia's AI GPU revenue will account for approximately 70% of TSMC's AI semiconductor revenue in 2025. However, AI ASICs are projected to become increasingly significant, comprising nearly 25% of TSMC's AI revenue by 2027, compared to Nvidia GPUs' share of around 65%.

TSMC will update its outlook and capital expenditure plans during the earnings call. In October, it hinted that 2025 spending could exceed 2024 levels, reflecting confidence in strong semiconductor and AI-driven demand.

While the outlook for TSMC remains strong, risks include potential geopolitical tensions, elevated capital expenditures, and challenges associated with ramping up overseas fabs. Furthermore, mature nodes continue to face utilization pressures, which could weigh on margins. Do you believe TSMC's 3nm technology will maintain its competitive edge through 2025? Share your thoughts below!

Source: JP Morgan, Morgan Stanley