TSMC’s fourth quarter results were unremarkable, with revenue declining by 1.5% compared to the previous year, and net income experiencing a more significant drop of 19.3%.
This downturn was anticipated, given the post-pandemic decrease in demand for consumer electronics such as smartphones and laptops.
Optimism emerged as TSMC presented a promising forecast: the company anticipates its revenue to grow quarter-on-quarter throughout 2024, with potential increases ranging from 21% to 26%.
This positive outlook is primarily driven by the surging demand for AI chips. TSMC projects that the annual growth rate for AI computing could reach as high as 50% in the upcoming years.
Furthermore, the company expects AI processors to contribute between 15% and 20% of its total revenue over the next five years.
This emerging trend represents a significant, multi-year growth driver for TSMC, a sentiment echoed by the market as its share price soared by 10% in a single day.
Not only did TSMC’s optimistic forecast boost its own stock, but it also had a ripple effect across the semiconductor industry.
Following the announcement, shares of TSMC’s key customers — Nvidia, AMD, and Qualcomm — experienced increases of 1.9%, 1.6%, and 4.3%, respectively.
Similarly, other chip manufacturers, including Intel, Broadcom, and Micron, saw their stocks rise by 1.5%, 3.7%, and 1.9%, respectively.
The biggest beneficiaries, however, were semiconductor equipment makers. Anticipated higher demand for advanced chip manufacturing equipment buoyed the stocks of companies like KLA, Applied Materials, Lam Research, and ASML, which surged by 4.9%, 4.5%, 4.4%, and 4.1%, respectively.
The overall impact was significant across the sector, with the iShares Semiconductor ETF (SOXX) marking an impressive gain of 3.3%.
The semiconductor sector outperformed the broader tech industry, as evidenced by the Nasdaq 100’s (Invesco QQQ Trust) 1.4% gain, which itself surpassed the more diversified S&P 500 (S&P 500 ETF), increasing by 0.9%.
Meanwhile, the 10-stock MicroSectors FANG+ ETN (FNGS), encompassing the ‘Magnificent 7,’ edged ahead with a 1.1% rise, outpacing the broad S&P 500 ETF.
In the wider market, large-cap stocks continued to outperform small-cap stocks. This was evident with a relatively lower 0.6% gain in the Russell 2000 (iShares Russell 2000 ETF).
This trend is not a recent development. In 2023, the AI narrative significantly influenced the share prices of AI-focused companies and major tech firms, while small-cap and non-tech stocks struggled. It seems that the momentum from 2023 is continuing into 2024.
Despite appearances of a market recovery suggested by rising indices, the broader market is still lagging. This is evidenced by the fact that, despite the indices climbing, 2,845 U.S. stocks experienced declines compared to 3,240 stocks that witnessed gains. This indicates that nearly half of the stock market is still underperforming.
The enduring strength of the AI theme suggests that it is more than just a passing trend. It could very well be a multi-year movement with the potential to drive the related stocks to even higher valuations, barring other exogenous factors.
