Taiwan Semi profit booms by 61% as Nvidia buoys demand

Taiwan Semiconductor Manufacturing Co. reported a 61% surge in Q2 profit to NT$398.3 billion, significantly exceeding consensus, driven by robust artificial intelligence demand, particularly from Nvidia. Sales also jumped 39%, with high-performance computing representing 60% of revenue. The company issued strong Q3 sales guidance of $31.8 billion to $33 billion, surpassing analyst expectations, though it projects a slight sequential decline in operating margin. This performance underscores the continued strength in AI chip demand, reflected in TSMC's stock rising 5% premarket.

Analysis

Taiwan Semiconductor Manufacturing Co. (TSMC) delivered a robust second-quarter performance, underscoring its critical role in the artificial intelligence supply chain. The company's profit surged 61% to NT$398.3 billion, decisively beating the NT$378.1 billion consensus, propelled by a 39% jump in sales to NT$933.2 billion. The dominance of the AI theme is evident, with high-performance computing (HPC) accounting for 60% of total revenue. Looking ahead, TSMC's third-quarter sales guidance of $31.8 billion to $33 billion signals continued momentum, as the midpoint implies revenue of NT$1.05 trillion, well above analyst expectations of NT$927.3 billion. However, this strong top-line outlook is tempered by a projected contraction in operating margin, which is guided to fall from 49.6% in Q2 to a range of 45.5%-47.5%. The market has responded positively, with a 5% premarket share price increase, though the margin pressure remains a key factor to monitor. Furthermore, potential upside exists from Nvidia's H20 chip sales in China, which the CEO acknowledged but has not yet incorporated into official guidance.

Key Decisions for Investors

• The significant earnings beat and strong Q3 revenue forecast validate a bullish outlook on TSMC, confirming its status as a primary beneficiary of sustained AI-driven demand.
• Investors should closely monitor the guided sequential decline in operating margins, as persistent margin compression could temper the impact of strong top-line growth on future profitability.
• Consider the potential for Nvidia to resume H20 chip sales to China as an unpriced upside catalyst that could provide a further boost to revenue if formally approved and incorporated into future guidance.