Taiwan Semiconductor Manufacturing Corporation shares (TSM 3.86%) Shares rose on Thursday after the world’s largest contract chip maker reported better-than-expected fourth-quarter results.
As of 12:20 p.m. ET, the stock was up 5.2%.
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TSMC can’t be stopped
TSMC was a big winner amid the AI boom and broader recovery in the chip sector, and that momentum continued in the fourth quarter.
Revenue for the period rose 38.8% to $26.9 billion, beating analysts’ consensus estimates of $26.3 billion. The company continued to benefit from increased adoption of advanced chips, with revenue from 3-nanometer (nm) process technology increasing to 26% from 15% in the year-ago period. Advanced technology, which the company defines as 7nm or smaller, accounted for 74% of sales.
Profits also expanded, reflecting both growth in sales of advanced chips and TSMC’s own pricing power. Gross margin improved from 53% to 59%, and operating margin jumped from 41.6% to 49%. As a result, the company reported adjusted earnings per share of $2.24, an increase of 57% year over year.
“Our business in the fourth quarter was driven by strong demand for our industry-leading 3nm and 5nm technologies,” said CFO Wendell Huang. However, he added: “Looking ahead to the first quarter of 2025, we expect our business to be impacted by smartphone seasonality, partially offset by continued growth in AI-related demand.” he warned.
What’s next for TSMC?
Despite the above comments, TSMC still issued much better than expected guidance for the first quarter. Sales are expected to be between $25 billion and $25.8 billion, the same decline from last quarter, but well ahead of analysts’ consensus estimate of $23.9 billion. Furthermore, the operating profit margin is expected to remain strong in the range of 46.5% to 48.5%.
Given the momentum in the AI space, TSMC’s dominant position in high-end chip manufacturing, and the company’s reasonable valuation, the stock looks like a good bet to move higher.
Jeremy Bowman works for Taiwan Semiconductor Manufacturing Company. The Motley Fool owns a position in and recommends Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
