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Chip manufacturing behemoth Taiwan Semi (TSM +4%) is flirting with all-time highs reached earlier this month after delivering energetic Q4 results, including healthy top and bottom-line beats and bullish Q1 revenue guidance. TSM, which supplies the chips used by most tech giants, from Apple (AAPL) to NVIDIA (NVDA), has consistently benefited from an unwavering demand for AI. In 2024, revenue from AI accelerators (including AI GPUs, AI ASICs, and HBM controllers for training) more than tripled yr/yr. For 2025, TSM anticipates much of the same, forecasting revenue from AI accelerators to double off an excellent 2024 base year, reflecting a continuous appetite for the technology this year.

• Headline earnings and sales were robust in Q4, expanding by 55% yr/yr to $2.24 and 37% to $26.88 bln, respectively. Aside from IoT and DCE (digital consumer electronics), which fell by 15% and 6% yr/yr, respectively, growth was broad-based in Q4. In HPC, TSM's largest end market, revenue surged by 19%, accounting for 53% of total revenue. Smartphone sales rose by 17%, comprising over a third of revs, while automotive sales inched 6% higher to account for 4%.
• AI demand was the underlying growth factor in Q4, consistent with the past several quarters. The company does not anticipate this letting up anytime soon, forecasting revenue growth from AI to approach a mid-40% CAGR for the next five years, starting off a high base in 2024. TSM added that AI will likely be the strongest driver of its HPC growth and the most significant contributor regarding overall incremental revenue growth over the next several years.
• With the AI winds at its back, TSM projected overall revenue growth to approach a 20% CAGR over the next five years, building off a 34% jump in 2024. In the interim, TSM guided to a $38-42 bln capital budget in 2025, a 34% lift yr/yr, reflecting anticipation of expanding demand from the many industry trends, such as 5G, AI, and HPC. For Q1, TSM expects revs of $25.0-25.8 bln and gross margins of 57-59%, a 100 bp contraction at the midpoint due to ramping its overseas fabs, inflationary costs, and FX headwinds.

While TSM's Q4 results were uplifting, they are not fueling much energy across the semiconductor landscape today, as many components experience mixed reactions. Today's unevenness is a noticeable contrast to the broad-based strength witnessed after TSM's Q3 performance in mid-October. Even though AI continues to underpin impressive growth, the rest of the picture is hazy. For instance, TSM predicts mild growth across the PC and smartphone industry in 2025, suggesting a stubbornly shaky economic backdrop that continues to strain the end consumer.

Still, TSM is confident that the headwinds in 2025 will be short-lived, citing a shortened replacement cycle and increased silicon content as PCs and smartphones contain more AI functionality. As such, TSM is poised for steady upward momentum this year, barring economic deterioration, growing geopolitical tensions, or cracks in AI.