Taiwan Semiconductor Manufacturing Co.'s shares rose sharply after it reported record quarterly results and guided for another strong quarter, a reassuring sign that its growth momentum will continue and the artificial-intelligence boom is real.
Shares of the world's largest contract chip maker advanced 5.8% early Friday, on track for their largest percentage gain in more than two months. The index heavyweight's gains sent Taiwan's Taiex 2.5% higher in early trading.
TSMC's third-quarter net profit surged 54% to the equivalent of $10.12 billion, topping market consensus, with the gross margin reaching 57.8%, exceeding its own high-end guidance of 55.5%.
The results were an "amazing beat," Citi analysts led by Laura Chen said, thanks to strong AI demand, solid execution and a better utilization rate in advanced nodes.
The company guided for fourth-quarter revenue of $26.1 billion to $26.9 billion, with the gross profit margin expected between 57% and 59%.
Citi analysts said that TSMC's gross margin has the potential to rise further into next year, with more revenue contribution from advanced chips and much better yields with the 3-nanometer chips. That trend is evident even after considering factors such as rising electricity costs and overseas fab operations, they wrote in a research note.
TSMC's high-performance computing segment, which includes AI chips, made up 51% of overall revenue in the third quarter. The company expects its revenue from AI-related servers and processors to triple this year, accounting for about 15% of its total revenue.
Major TSMC chip-equipment supplier ASML reported poor results earlier this week and warned that while demand for AI remained strong, the recovery in some parts of the industry may stretch into next year.
The situation bodes well for TSMC, Morningstar analyst Phelix Lee said in a note. With Samsung and Intel--the Taiwanese company's main rivals in the foundry business--struggling to advance their chip-making technology and expected to cut costs, TSMC could demand lower lithography machine prices and improve its cash flow further, Lee said.