TSM's stock hit a new high. Can AI demand really last for years as the CEO claimed?

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TSMC's Profit Beat Lifts Nvidia, Boosting Demand for Call Options

Luzi Ann Santos joined discussion · Oct 18, 2024 00:26

$Taiwan Semiconductor (TSM.US)$'s profit beat and its improving outlook quelled concerns over demand for chips used in artificial intelligence (AI) applications. That optimism is also boosting the appeal of call options for the company and its customer $NVIDIA (NVDA.US)$.

"The demand is real, and I believe it's just the beginning," TSMC Chief Executive Officer C.C. Wei said in the company's earnings call with analysts Thursday. "I believe a lot of companies right now are using AI for their own improving productivity, efficiency, and everything."

The supplier to Nvidia and $Apple (AAPL.US)$ predicted that its fourth quarter revenue could reach $26.1 billion to $26.9 billion, surpassing analysts' consensus of about $25 billion, estimates compiled by Bloomberg showed. The Taiwanese company that supplies semiconductors for computing, smartphones, automotive, internet of things and digital consumer producers exceeded analysts' estimates for third quarter adjusted earnings, revenue, and gross margin.

Revenue and estimates in TWD

TSMC Chief Financial Officer Wendell Huang said the company's capital expenditures will exceed $30 billion this year and the figure for 2025 is likely to be even higher. The company is likely to boost capex by 20% in 2025, and that "indicates confidence in the company's growth scope," Bloomberg Intelligence analysts said.

The Taiwanese company's American depositary receipts (ADRs) jumped almost 12% to $209.19 as of 12:15 p.m. in New York Thursday. That bolstered the odds that the call option that gives the holders the right to buy the ADR at $210 could be in-the-money before they expire when the market closes tomorrow. Volume on that call reached 39,580 contracts so far, more than 10 times the open interest.

TSMC's Profit Beat Lifts Nvidia, Boosting Demand for Call Options

(To see TSMC's options chain, click here. For Nvidia's options chain, click here.)

TSMC's financial results signal "no end in sight to AI-derived strength," a Wedbush analyst who has an outperform rating on the stock was quoted by Bloomberg as saying.

CEO Wei said TSMC is increasing its capacity by more than twice for chip-on-wafer-on-substrate (CoWoS), an integrated circuit used by customers including Nvidia, noting that "our customers' demand far exceeds our ability to supply.

Those comments were viewed by Wedbush as "positive for Nvidia."

Call options that give the holders the right to buy Nvidia's shares at $140 each by tomorrow attracted the heaviest volume among contracts tied to the stock. About 361,250 of those call options changed hands so far, almost triple the open interest. That contract's price jumped 86% amid increasing probability that the contract will be in-the-money before it expires in one day, with Nvidia shares now up 3.1% at $139.40.

(For the US options market page, click here. To find the unusual options activities, click here.)

Share your thoughts on TSMC and Nvidia in the comments section.

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