TSMC reports blockbuster results even as questions arise about AI mania

• Taiwan Semiconductor Manufacturing Company just reported a 54% increase in net profit in the third quarter.
• TSMC’s growth was fueled by strong demand for artificial intelligence technologies.
• But the market is wondering whether the euphoria about AI and AI chips is sustainable.

Chip giant Taiwan Semiconductor Manufacturing Company just reported strong growth, thanks to continued enthusiasm for artificial intelligence – even amid lingering questions about the technology’s return on investment.

TSMC, the world’s largest contract chipmaker, reported a better-than-forecast 54% rise in net profit to a record 325.3 billion new Taiwan dollars, or $10.1 billion. Analysts had expected a profit of 300.2 billion new Taiwan dollars, according to LSEG SmartEstimate.

The chipmaker’s third-quarter revenue rose 36% to $23.5 billion, also beating its previous forecast of $22.4 billion to $23.2 billion. The company forecast fourth-quarter revenue of $26.1 billion to $26.9 billion, up from $19.6 billion in the same period last year.

The Taiwanese company’s blockbuster results came after Dutch chip maker ASML – a supplier to TSMC – announced forecasts on Tuesday that disappointed investors and triggered a sell-off in chip stocks.

One of the first questions on TSMC’s analyst conference call on Thursday was whether there is an AI bubble.

CC Wei, chairman and CEO of TSMC, said the demand for AI is “real.”

Wei said TSMC’s experience in using AI and machine learning in its factories and research and development operations has enabled higher productivity – a tangible return on investment.

“We cannot be the only company that has benefited from AI applications,” Wei said, adding that the demand trend has just begun.

TSMC’s share price in Taiwan closed 0.96% lower on Thursday, but the stock is up nearly 75% year-to-date and is near its all-time high.

TSMC’s strong Q3 results show that the AI ​​spending party is still going strong despite fears to the contrary.

As Goldman Sachs asked in June Report: “Will this big expense ever pay off?”

In August, AI chip maker Nvidia caused a stir in the market when its earnings beat estimates but fell short of high market expectations amid jitters about returns on AI investments.

TSMC investors seem to be convinced immediately after the earnings announcement. TSMC American Depositary Receipts on the New York Stock Exchange rose over 7% in after-hours trading following the earnings announcement.

ASML: Demand in China is normalizing from a peak

TSMC’s positive results contrasted with ASML’s.

On Tuesday, the company lowered its 2025 sales forecast, sending its shares down 16%, marking the biggest one-day decline in 26 years. The stock extended losses on Wednesday, closing down 5.1% and trading 7% lower for the year so far.

“While there continue to be strong developments and upside in AI, other market segments are taking longer to recover,” ASML CEO Christophe Fouquet said in a statement on Tuesday.

On Wednesday, ASML CFO Roger Dassen said U.S. export restrictions will likely continue to contribute to lower sales going forward.

“We all read newspapers, don’t we? We all see that there is speculation about export controls. This is a reason for us to view China sales more cautiously,” said Dassen.

China is an important ASML customer, accounting for around a quarter of total net sales in 2023 – even though ASML has never sold its state-of-the-art chip machines to Chinese customers due to existing export restrictions.

In anticipation of further export restrictions, China has stockpiled technology products, including ASML machines. But ASML still expects sales to China to fall to a fifth of its total revenue next year, which Dassen calls “normal.”

It is “completely reasonable” for ASML to make some adjustments to its forecasts since its 2025 guidance range was set during its investor day in 2022, Andy Li, senior semiconductor and technology analyst at CreditSights, told Business Insider.

But that doesn’t mean that demand for AI is declining.

“I don’t think this can be expected to have a meaningful impact on near-term demand for AI, although order growth expectations for ASML were a bit too aggressive and the valuation was stretched,” Li said.