Why Trump’s theory of a “protection fee” clearly results in TSMC seeing its stock price fall below 1,000 yuan. On the 18th, analysts at the scene asked only one question about American politics during the French Forum. Wei Zhejia, who assumed the role of chairman in June, took less than a minute to respond.
His answer was: Compared to Trump’s various alarming statements, the market is more concerned about the two primary customer needs and trends from key customer representatives, as these factors can truly affect TSMC’s performance.
On July 18, it was Wei Zhejia’s first time presiding over a Dhamma talk as TSMC’s chairman at the Far Eastern Hotel in Taipei. Before the meeting, he sat composedly with a faint smile and his eyes narrowed into a straight line. Once the Dharma meeting commenced, he consistently replied to direct or pointed questions with the same calm demeanor, engaging in conversation with ease.
It is hard to envision that just a day prior to the meeting, Bloomberg interviewed U.S. presidential candidate Trump, who stated, “Taiwan has stolen 100% of our chip business, and Taiwan should pay us protection fees!” This statement not only caused a scare, leading to a 371-point drop in Taiwan’s stock market but also resulted in a nearly 650 billion yuan evaporation in TSMC’s market value.
However, Wei Zhejia began by announcing second-quarter profits that exceeded expectations, subsequently raising the performance forecast for the year. With a projected full-year revenue increase of 26% in U.S. dollars, several foreign investors, including UBS and HSBC, have decided to invest in TSMC shares. Citigroup even adjusted its target price to a historic 1,500 yuan.
“We have noticed that customer demand for AI and high-end smartphones in the past three months has been stronger than it was three months ago!” Wei Zhejia emphasized that this heightened demand has resulted in an increase in TSMC’s 3 / 5 nanometer process capacity utilization, which will help enhance the gross profit margin in the latter half of the year.
The demand for cloud AI and edge AI is extremely high
CoWoS production capacity has more than doubled with demand still surpassing supply
His message is clear: There is a stronger demand alignment than before, ranging from cloud AI to edge AI.
Initially, when discussing cloud AI, NVIDIA, a major customer and “AI Godfather” led by Jen-Hsun Huang, comes to mind. One of Wei Zhejia’s crucial signals is that the advanced packaging technology “CoWoS” for packaging NVIDIA and Super Micro AI chips is currently in short supply, and this will persist into the following year.
“I have tried to balance supply and demand, but today… I am unable to, as the demand is incredibly robust! I need to work exceptionally hard to meet customer needs,” Wei Zhejia admitted, stating that TSMC has increased its CoWoS production capacity by more than 1%. It’s likely to double again next year, yet demand continues to outstrip supply.
His comments undeniably highlight the strong demand for chips in AI data centers, indicating that major chip designers have maintained chip production, thus dispelling the rumored AI “bubble” theory circulating in the market.
Next, addressing edge AI, which pertains to the demand for AI in mobile phones and laptops, Wei Zhejia’s outlook shows that demand for high-end smartphones in the latter half of the year is clearly better than the expectations set three months prior.
“Apple Light” revitalizes Apple-related stocks
Analyst: A significant wave of mobile phone replacements is expected next year
This underlines Apple’s strong resurgence, as TSMC’s largest customer and the world’s second-largest mobile phone brand, regains market attention.
A report from foreign-invested Morgan Stanley pointed out that during the Apple Developer Conference in early June, an AI service called Apple Intelligence was unveiled, which is expected to ignite a wave of iPhone replacements. Analyst Erik Woodring noted that only 5% of iPhones globally currently support Apple’s AI services, signifying that as many as 1.45 billion iPhones are due for upgrades.
“We predict that the AI feature will shorten the replacement cycle.” Wei Zhejia echoed foreign investors’ views, noting that all customers aspire to integrate AI into their devices. “In terms of volume growth, over the next few years, or possibly within two years, we will start to see substantial growth in mobile phones and PCs.”
Not only did Apple’s stock surge post-Developer Conference, reclaiming its status as the world’s highest market capitalization company; across the sea, shares of Largan Opto, one of Apple’s related stocks, increased by nearly a thousand yuan within a month, establishing it as the foremost iPhone assembly plant. Hon Hai even surpassed the 200 yuan “Guo Dong Defense Line,” while another ASE, Jade Crystal, and Pegatron experienced stock price increases reaching new peaks or all-time highs.
“For Apple, at the very least, the worst is behind it, and it has regained the attention of the market (due to AI) because the AI architecture is exceptionally clear.” Ming-Chi Kuo, an analyst at Tianfeng International Securities known as a leading Apple expert, stated, “If Apple’s stock price rises, it will result in a surge in the stock prices of Apple’s supply chain.” He also noted that since Apple’s AI services will only launch in English-speaking countries this year, the anticipated large-scale replacement wave should unfold next year.
Morgan Stanley forecasts a 7% growth in iPhone shipments by 2025, reaching 235 million units, and by 2026, shipments are expected to hit 262 million units, a record high.
In the short term, Kuo Ming-chi believes Qualcomm will actually “assist” TSMC in the mobile phone market this year, as TSMC’s largest rival, Samsung, has “outsourced” its 3-nanometer process. “This is an unexpected benefit (in the near term).”
Issues with Samsung’s semiconductor department’s 3nm yield rate led to the decision to utilize multiple Qualcomm chips for the forthcoming flagship AI phone S25 instead of relying on in-house chips. Qualcomm’s 3-nanometer chips are produced by TSMC, further driving the growth of mobile phone chip shipments.
In reality, for TSMC, the rise of AI is merely the beginning. Before the peak of the mobile phone and PC replacement wave driven by AI, the fluctuations caused by political whispers might be just fleeting disturbances.
(Author: Minyi Lee; This article is published by Business Weekly with permission; source of the first image: Science and Technology News)
Further reading:
Analyzing Trump’s “Protection Fee” Theory and Its Impact on TSMC Stock
The recent remarks by former U.S. President Donald Trump regarding Taiwan and the semiconductor industry have incited significant discussions in the financial markets. Trump’s claim that “Taiwan has stolen 100% of our chip business” and demanding a “protection fee” has raised eyebrows, particularly among investors of major players in the semiconductor market like TSMC. This article delves into the implications of these statements on TSMC’s performance and stock price.
The Market’s Reaction to Political Statements
Trump’s provocative assertions caused immediate repercussions, with Taiwan stocks sinking by 371 points, leading TSMC’s market value to evaporate nearly 650 billion yuan. However, TSMC’s response, particularly by its new chairman Wei Zhejia, demonstrates a resilient outlook aimed at refocusing market interests on the company’s strong performance rather than political rhetoric.
TSMC’s Strong Performance Despite Political Rhetoric
During Wei Zhejia’s inaugural presiding in a recent Dhamma talk, he announced better-than-expected second-quarter profits, forecasting a remarkable 26% revenue growth in U.S. dollars for the year. This positive outlook prompted major investments from foreign entities like UBS and HSBC, with Citigroup even raising its target price for TSMC stocks to an unprecedented 1,500 yuan.
Demand Trends in the Semiconductor Market
Cloud AI and Edge AI Drive Demand
One of the crucial factors influencing TSMC’s growth is the burgeoning demand for AI applications across various sectors. Wei emphasized a robust demand from both cloud AI and edge AI technologies, indicating that their advanced packaging technology, CoWoS, is currently oversubscribed with demand expected to exceed supply well into next year.
Key highlights from Wei’s insights include:
- Cloud AI: Major customer Nvidia, led by CEO Jen-Hsun Huang, is driving significant demand for chips, particularly for AI data centers.
- Edge AI: The resurgence of high-end smartphones is creating substantial requirements for mobile devices equipped with AI functionality, indicating a shift in consumer preferences.
Impact of Key Customers: TSMC’s Relationship with Apple
Another pivotal player in TSMC’s storyline is Apple, which has historically been one of TSMC’s largest customers. The recent launch of AI services by Apple during their Developer Conference is expected to ignite a wave of iPhone upgrades, as only 5% of the world’s iPhones currently support these services. Analysts predict that this could lead to over 1.45 billion iPhones needing upgrades, positively impacting TSMC’s order book.
Future Outlook: TSMC and the Replacement Wave
Analysts’ Perspective
Industry experts like Ming-Chi Kuo foresee that the wave of iPhone and PC replacements driven by AI functionalities is on the horizon, with substantial shipments expected in the next few years. Morgan Stanley forecasts an increase in iPhone shipments to 235 million by 2025 and reaching 262 million by 2026, presenting a robust demand environment for TSMC.
Qualcomm’s Role in TSMC’s Growth
This year, Qualcomm is expected to leverage TSMC’s capabilities for the upcoming flagship AI phone, especially given challenges faced by rival Samsung in their fabrication processes. This partnership may further solidify TSMC’s position in the semiconductor supply chain.
Potential Risks Amidst Political Climate
Political Noise versus Market Fundamentals
While political statements like Trump’s may induce short-term fluctuations in TSMC’s stock price, the underlying demand indicators suggest a robust growth trajectory in the coming years. The combination of strong customer demand and successful product launches indicates that TSMC is well-positioned to navigate potential turbulence caused by external political pressures.
Benefits of Focusing on Core Market Drivers
Investors and stakeholders should focus on the fundamental market drivers rather than be swayed by transient political commentary. The continuous demand for chips amidst advancements in AI technology is likely to offer a buffer against such disturbances.
Case Studies: Industry Trends Supporting TSMC
Technological Advancements in AI
As the semiconductor industry increasingly leans towards AI-driven innovations, TSMC stands to benefit significantly. Companies diversifying into AI capabilities are likely to bolster the demand for TSMC’s advanced manufacturing plants.
Long-term Partnerships and Collaborations
The collaborations with major tech firms will likely enhance TSMC’s innovation streak and contribute to its growth metrics, evidencing the importance of strategic partnerships in maintaining competitiveness in the semiconductor landscape.
Conclusion: Navigating the Storm
In summary, despite Trump’s inflammatory remarks, TSMC’s fundamentals remain strong. The demand for advanced AI processors is flourishing, and with major industry players like Apple and Qualcomm driving growth, TSMC’s future outlook appears promising. Stakeholders should remain focused on these core growth drivers as they navigate the complexities of the semiconductor market.
