Nvidia’s most important supplier is posting record profits thanks to ravenous AI demand. That was the upshot from the latest earnings release from Taiwan Semiconductor Manufacturing Company, or TSMC, which used the occasion to say it doesn’t think major customers like Jensen Huang’s chipmaking behemoth will be scaling down their spending in 2025. TSMC’s stock jumped 5% Thursday after the company revealed net income rose 57% for the final quarter of 2024, while revenue increased 37% to nearly $27 billion.
While Nvidia’s graphic processing units are at the heart of AI trade, it outsources the manufacturing of those chips to TSMC, the king of the so-called “foundry business.” While Nvidia sells nearly 90% of the world’s GPUs, the Taiwanese company boasts a similar market share for producing the world’s most advanced AI chips, according to the U.S. Department of Commerce. While Nvidia’s stock is up roughly 140% in the past 12 months, TSMC’s shares have been close behind, gaining more than 110% over the same period.
“We expect AI accelerators to be the strongest driver of our [high performance computing] platform growth and the largest contributor in terms of our overall incremental revenue growth in the next several years,” TSMC CEO C.C. Wei said.
Nvidia’s earnings calls, viewed as a bellwether for the entire AI trade, have become a major news event, even inspiring quarterly watch parties among retail investors. While TSMC’s reports might not receive quite the same fanfare, their financial results also provide a lens to industry sentiment.
“Almost every AI innovator is working with TSMC,” Wei told analysts last quarter. “And so we probably get the deepest and widest look of anyone in this industry.”
The benchmark semiconductor index, known as SOX, was up 2% as of early Thursday afternoon. Dutch company ASML, which makes essential equipment for the semiconductor industry, saw its shares surge over 5% after the latest blowout earnings from TSMC, which is its biggest client. Nvidia’s stock spiked in premarket trading before falling more than 1% later in the session.
Will the AI spending wave continue in 2025?
America’s biggest tech companies, or the so-called “Magnificent Seven,” are set to face greater scrutiny from investors this year about whether massive investments in AI are starting to generate returns. Asked about whether he thought the spending wave would continue last quarter, Wei expressed confidence it was sustainable. On Thursday, he said the company expects AI-related sales to double this year, even after they tripled in 2024.
The business still faces major headwinds, however, as competition between the U.S. and China intensifies. Ahead of Donald Trump’s inauguration next week, the outgoing Biden administration proposed new restrictions on AI chip exports.
Trump, meanwhile, has alleged Taiwan “stole” U.S. semiconductor manufacturing. TSMC’s stock plunged in July after the now president-elect made comments that sparked fresh doubt about America’s commitment to defend the island in the event of a Chinese invasion.
Amid these heightened geopolitical tensions, TSMC has invested heavily in diversifying its geographic footprint in places like the U.S., Japan, and Europe, including more than $65 billion spent on the company’s three plants in Arizona.
