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Artificial intelligence (AI) stocks led early gains during the AI boom as companies and investors looked to the technology’s potential to improve efficiency and accelerate innovation. A key requirement for AI is chip-powered model training, which in turn supports demand for advanced semiconductor manufacturing. Taiwan Semiconductor Manufacturing (TSM) is positioned as a central beneficiary because it produces many of the chips used across the AI ecosystem.
TSMC is the world’s largest semiconductor foundry, with a reported 72% market share. While many prominent AI chip companies design their own chips, they typically rely on TSMC for manufacturing. This structure means TSMC benefits from demand across multiple AI chip designers, not only from a single vendor.
Because TSMC manufactures advanced chips, it uses a range of materials and faces risks that can affect production and delivery. The company uses gases such as helium and hydrogen, and potential issues include shifts in prices, shortages, and geopolitical events that could disrupt transport. TSMC also noted that, given the current conflict in Iran, it does not expect an impact on supply so far.
Supply constraints can also arise from other components involved in the chip supply chain, including memory. Shortages of elements required for production are possible due to high customer demand, including from major chip designers.
To meet rising demand, TSMC is expanding capacity, which the company expects may dilute margins over the coming years as new facilities ramp up. TSMC is offsetting this with productivity gains and cost control. The company has also increased return on invested capital over time, indicating that its investments are generating returns.
TSMC’s earnings have been rising, reaching record levels for a fourth straight quarter. In the latest quarter, revenue advanced 35%, while earnings per share increased 58%, driven by demand for powerful AI chips.
A key development highlighted in the report is that major technology companies are increasingly designing their own chips. Amazon and Meta Platforms have already been doing this, and the trend may be in its early stages for other players.
AI lab Anthropic, maker of the Claude model, is reportedly examining the possibility of designing its own chips, according to Reuters. If Anthropic moves forward, it would likely still rely on TSMC for manufacturing, given TSMC’s role as a leading foundry.
The report also notes that Amazon may be able to scale its in-house chips significantly. Amazon’s Trainium chip is described as lowering costs for the company and its customers. Chief Andy Jassy wrote in a shareholder letter that, at scale, Amazon’s Trainium would save “tens of billions of capex dollars per year.”
More companies designing their own chips could translate into additional business for TSMC, supporting revenue growth. However, the pace of growth would depend on TSMC’s ability to produce these chips amid supply-chain and production challenges. The report adds that potential customers have limited foundry alternatives, and building out in-house manufacturing would require enormous investment in technology, access to specialized talent, and years to establish capabilities.
Overall, the trend toward more chip design by major AI and technology players is presented as a positive development for TSMC, with the expectation that the foundry will benefit over time.
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