AI bull case gets its biggest booster

It is telling that the head of the world’s most important chipmaker had to talk to his “customers’ customers” to make sure demand for artificial intelligence is, in fact, real. But the $1.4 trillion Taiwan Semiconductor Manufacturing’s chief executive has done just that to justify a huge increase in capital expenditure for the current year. It’s just the type of validation AI bulls have been waiting for.

Speaking on the company’s earnings call on Thursday, CC Wei concluded that he was “quite satisfied” after his discussions both with buyers of TSMC’s cutting-edge silicon like Nvidia and with users of those products – namely cloud service providers including Alphabet’s Google, Amazon and Microsoft. It also helps that the company reported record quarterly earnings of T$505 billion, or $16 billion, a 35 percent year-on-year jump, for the three months to the end of December. That’s well above the mean T$467 billion analyst forecast, per Visible Alpha. TSMC also now expects annual top line growth to average 25 percent until 2029, up from a previous guidance of 15 to 20 percent, driven by AI chip demand.

That’s well above the mean T$467 billion analyst forecast, per Visible Alpha

All of that was enough to convince the company, famed for its financial discipline, to loosen its purse strings. TSMC on Thursday flagged an up to 37 percent jump in its capex spending this year, to an astonishing $56 billion. That’s partly due to the rising cost of manufacturing more complex processors. But most of that will fund a massive capacity expansion in both Taiwan and the United States, where TSMC has committed to invest $165 billion in new facilities. Analysts at Fubon Research estimate output of its most advanced 2-nanometre chip will expand fivefold between 2025 and 2027.

Moreover, Friday’s trade deal between Washington and Taipei hints that more is on the way. As part of the agreement, Taiwanese companies will invest at least $250 billion in the United States, which already includes what TSMC has pledged. Though details were lacking, such as timeframes and which other firms will participate, Wei separately revealed that his company bought a second “large” piece of land in the US to support current expansion plans and “provide more flexibility” for future demand.

Against the backdrop of rising AI bubble fears, TSMC offers a powerful endorsement. At the same time, though, that one of the industry’s most cautious spenders is splurging also suggests that any downturn will be painful and far-reaching.

Taiwan Semiconductor Manufacturing (TSMC) on January 15 reported revenue of T$1.1 trillion ($33.2 billion) in the three months to the end of December, an increase of 20.5 percent from the same period the previous year. Earnings rose 35 percent to T$505.7 billion.

TSMC forecasts 2026 revenue would rise by nearly 30 percent in US dollar terms and expects capital expenditure to be between $52 billion and $56 billion for the year.

Separately, the US and Taiwan agreed on a trade deal on January 16 that lowers tariffs on the island’s exports to the US to 15 percent from the current 20 percent. Taiwanese chipmakers that expand US production will be charged a lower levy on semiconductors or related manufacturing equipment and products they import into the US and can import some duty-free.

In exchange, Taiwanese companies will invest $250 billion to increase production of semiconductors, energy and artificial intelligence in the United States. Taiwan will also guarantee an additional $250 billion in credit to facilitate further investment.