By Jacky Wong

If growth at a reasonable price is the goal, the world's largest contract chip manufacturer fits the bill.

Strong demand for artificial intelligence chips has delivered a stellar quarter for Taiwan Semiconductor Manufacturing Co., or TSMC.

The company said Thursday that revenue for the December quarter rose 39% from a year earlier while profit surged 57% to a record. TSMC counts companies like Nvidia and Apple among its customers. For the most cutting-edge chips, TSMC faces little competition, giving it an enviable position with great bargaining power.

TSMC's shares have gained 86% since the end of 2023. It still lags far behind Nvidia-which has nearly tripled in that period-but has outperformed most of its peers. The PHLX Semiconductor index has only gone up 23%.

Being a more diversified company, TSMC won't see such explosive growth as Nvidia, but it still offers good growth prospects. It sees revenue rising in the mid-20% range in 2025.

Cloud-service providers like Amazon and Microsoft increasingly design their own custom chips for AI, and TSMC makes those chips as well, providing a hedge against reliance on only Nvidia. Apart from AI, TSMC also makes chips for smartphones, computers and cars, giving it some downside protection even if the AI boom fades.

Crucially, TSMC trades at around 19 times forward earnings compared to 46 times for Nvidia, according to FactSet. Taiwan's chip champion should remain in investors' AI portfolios.

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(END) Dow Jones Newswires

January 16, 2025 06:21 ET (11:21 GMT)

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