Shares of Taiwan Semiconductor Manufacturing (TSM 3.86%) gained 3.9% on Thursday, following the world's largest contract semiconductor manufacturer's release of its fourth-quarter 2024 report.

The stock's rise is likely in part due to the company beating Wall Street's Q4 revenue and earnings expectations. But the bulk of the rise is probably attributable to management's forecast for continued strong demand in 2025 and beyond for its services to produce artificial intelligence (AI) chips for its customers.

To support its rosy demand projections, in 2025, the company plans to increase its capital expenditures (capex) to between $38 billion and $42 billion, which equates to annual growth of 28% to 41%.

TSMC's customers are semiconductor companies that outsource all or some of their chip production -- such as Nvidia, Advanced Micro Devices, Broadcom, Marvell Technology, Arm Holdings, and Qualcomm -- and big tech companies that design some of their own chips, namely Apple. Apple and Nvidia are widely considered by Wall Street analysts to be TSMC's largest two customers.

Taiwan Semiconductor Manufacturing's key quarterly numbers

Metric Fiscal Q4 2024 Change YOY
Revenue $26.88 billion 37%
Earnings per share (EPS) $2.24 56%

Data source: Taiwan Semiconductor Manufacturing.YOY = year over year.

The above results are in terms of the U.S. Dollar (USD). In the company's local currency, New Taiwan (NT) dollar, its fourth quarter revenue increased 39% and its EPS rose 57%.

Wall Street was looking for EPS of $2.20 on revenue of $26.2 billion, so TSMC exceeded both expectations.

TSMC's Q4 sequential-quarter revenue growth by platform was as follows, as CFO Wendell Huang outlined on the earnings call:

  • High-performance computing (HPC), which includes AI chips: increased 19% to account for 53% of total revenue.
  • Smartphones: increased 17% to account for 35% of total revenue.
  • Internet of Things (IoT): decreased 15% to account for 5% of total revenue.
  • Automotive: increased 6% to account for 4% of total revenue.
  • Digital Consumer Electronics (DCE): decreased 6% to account for 1% of total revenue.

What management had to say

CFO Huang's statement in the earnings release:

Our business in the fourth quarter was supported by strong demand for our industry-leading 3nm and 5nm technologies. Moving into first quarter 2025, we expect our business to be impacted by smartphone seasonality [which is historically weak in the first quarter of each year], partially offset by continued growth in AI-related demand.

In the fourth quarter, shipments of advanced technologies (which the company defines as 7-nanometer and more advanced techs) accounted for 74% of total wafer revenue. For full-year 2024, advanced technologies accounted for 69% of total wafer revenue, up from 58% in 2023.

Moreover, the company's 2-nanometer tech (N2) "is well on track for volume production in second half of 2025," CEO C.C. Wei said on the earnings call.

Dividend growth 

Unlike most companies in the semiconductor industry, Taiwan Semiconductor Manufacturing pays a dividend. The dividend has increased about 67% over the last five years.

As of the market close on Thursday, the company's dividend was yielding about 1.3%.

Guidance for Q1 2025, full-year 2025, and 5-year period

For the first quarter of 2025, management guided for revenue of $25.0 billion to $25.8 billion, which equates to growth of about 32% to 37% year over year. This forecast topped Wall Street's expectation of $24.9 billion.

One the earnings call, CEO Wei shared TSMC's full-year 2025 guidance:

  • Full-year 2025 revenue is expected to increase by close to mid-20s percent in U.S. Dollars (USD).

  • "Even after more than tripling in 2024, we forecast our revenue from AI accelerators to double in 2025 as the strong surge in AI-related demand continues," Wei said. For context, revenue from AI accelerators accounted for close to mid-teens percent of the company's total 2024 revenue. 

On the call, Wei also provided the company's 5-year outlook:

  • Five-year revenue growth is expected to approach a 20% compound annual growth rate (CAGR) in USD terms.
  • Five-year revenue growth from AI accelerators is expected to approach a mid-40% CAGR, starting off the already high base of 2024.

A stock worth considering buying

For growth-oriented investors, Taiwan Semiconductor Manufacturing stock is worth considering buying. The company dominates the manufacturing of advanced technology chips, and is poised to continue to benefit from the strong demand for its customers' chips to enable AI capabilities. Moreover, its steadily increasing dividend is a nice plus. 

Shares are trading at about 19.8 times projected 2025 earnings, which Wall Street is forecasting to grow 19.3% year over year and at a 31.4% CAGR over the next five years. This is a very reasonable valuation. 

The company does have some geopolitical risk from China, which views Taiwan as belonging to it. That said, it seems unlikely China would undertake aggressive action as that would likely generate a swift and aggressive response by countries across the world whose economies highly depend on chips made in Taiwan.

As for the increased export restrictions on advanced chips that the Biden administration announced on Monday, Wei said on the earnings call that the company has not yet done a complete analysis of its impact. But he said that at "first look" the impact "is not significant" and "manageable."