Chip giant TSMC reports blockbuster results even as questions over AI mania loom

• Taiwan Semiconductor Manufacturing Company just reported a 54% rise in third-quarter net profit.
• TSMC's growth was driven by strong demand for artificial intelligence technology.
• But the market is questioning whether the euphoria over AI and AI chips is sustainable.

Chip giant Taiwan Semiconductor Manufacturing Company just reported strong growth, thanks to continued enthusiasm for artificial intelligence — even amid persistent questions over the return on investment from the technology.

TSMC, the world's largest contract chipmaker, reported a forecast-beating 54% rise in third-quarter net profit to a record 325.3 billion New Taiwan Dollars, or $10.1 billion. Analysts had expected the company to post a profit of 300.2 billion New Taiwan dollars, according to LSEG SmartEstimate.

The chipmaker's third-quarter revenue rose 36%, to $23.5 billion, which also beat its previous forecast of $22.4 billion to $23.2 billion. The company is forecasting fourth-quarter revenue of $26.1 billion to $26.9 billion — up from $19.6 billion in the same period last year.

The Taiwanese company's blockbuster results came after Dutch chip equipment maker ASML — a supplier to TSMC — reported guidance on Tuesday that disappointed investors and triggered a sell-off in chip stocks.

One of first questions at TSMC's Thursday analysts' earnings call was whether there's an AI bubble.

CC Wei, TSMC's chairman and CEO, said that the demand for AI "is real."

Wei said TSMC's experience in using AI and machine learning in its fabs and R&D operations has enabled greater productivity — a tangible return on investment.

"We cannot be the only one company that has benefited from AI applications," said Wei, adding that the demand trend has just started.

TSMC's share price in Taiwan closed 0.96% lower on Thursday, but the stock is up nearly 75% this year-to-date and near its all-time high.

TSMC's strong Q3 results show the AI spending party is still on, despite fears to the contrary.

As Goldman Sachs asked in a June report: "Will this large spend ever pay off?"

In August, AI chipmaker Nvidia sparked jitters in the market when its earnings beat estimates but did not meet lofty market expectations amid nervousness over the return on AI investments.

TSMC investors appear to be convinced immediately after its earnings call. TSMC American Depositary Receipts on the New York Stock Exchange jumped over 7% in after-hours trade following its earnings announcement.

ASML: China demand is normalizing from a high

TSMC's upbeat results contrasted with those from ASML.

On Tuesday, the company slashed sales guidance for 2025, sending its stock down 16% in its largest single-day drop in 26 years. The stock extended losses on Wednesday to close 5.1% lower and was 7% lower year-to-date.

"While there continue to be strong developments and upside potential in AI, other market segments are taking longer to recover," Christophe Fouquet, the CEO of ASML, said in a statement on Tuesday.

On Wednesday, Roger Dassen, ASML's CFO, said US export restrictions are also expected to contribute to lower sales going forward.

"We all read newspapers, right? We all see that there is speculation around export control. That is a driver for us to take a more cautious view on the China sales," said Dassen.

China is an important ASML customer, accounting for around a quarter of its total net sales in 2023 — even though ASML has never sold its most advanced chip machines to Chinese customers, due to existing export restrictions.

China has been stockpiling tech products, including ASML machines, in anticipation of more export restrictions. But ASML still expects sales to China to drop to one-fifth of its total revenue next year, which Dassen said is "normal."

It's "entirely reasonable" for ASML to have some adjustments to its guidance because its guidance range for 2025 was made during its Investor Day in 2022, Andy Li, a senior analyst for semiconductors and tech at CreditSights, told Business Insider.

But it doesn't mean AI demand is fizzling.

"I don't think you can view this as having meaningful read-through to near-term demand for AI, though order growth expectations for ASML were a bit too aggressive and valuation stretched," said Li.