By Adam Clark

Taiwan Semiconductor Manufacturing reported a surge in quarterly profit on the back of demand for artificial-intelligence hardware.

The Taiwanese chip manufacturer reported that its fourth-quarter net profit rose 57% from the same period a year before to 374.68 billion New Taiwan dollars ($11.37 billion). That was ahead of the 370.64 billion New Taiwan dollars forecasts by analysts in a FactSet poll.

TMSC's December-quarter revenue came to 868.46 billion New Taiwan dollars, up 39% on the year. In U.S. dollar terms, revenue rose 37% to $26.88 billion.

The company's American depositary receipts gained 5.2% in premarket trading on Thursday. The iShares semiconductor exchange-traded fund was up 1.5%. For comparison, S&P 500 futures were flat.

TSMC's fastest-growing area of business was high-performance computing $(HPC.AU)$, which includes AI chips. Its HPC revenue climbed 58% in the fourth quarter from the same period a year earlier. TSMC Chairman and Chief Executive C.C. Wei said revenue from AI-related servers and processors is expected to double in 2025 after more than tripling last year to account for 18% of its total revenue.

TSMC dominates the market for manufacturing high-end chips. It is the main supplier of chips to Nvidia, which leads the market for semiconductors used for AI applications.

The company also makes the core processors inside Apple iPhones, Qualcomm mobile chipsets, and processors made by Advanced Micro Devices.

"Our business in the fourth quarter was supported by strong demand for our industry-leading 3nm [nanometer] and 5nm technologies," said Wendell Huang, chief financial officer of TSMC.

"Moving into [the] first quarter [of] 2025, we expect our business to be impacted by smartphone seasonality, partially offset by continued growth in AI-related demand," Huang said.

TSMC expects first-quarter revenue for 2025 of between $25 billion and $25.8 billion. That would be up from $18.87 billion a year earlier. It also said it expects capital spending between $38 billion and $42 billion this year.

The capital investment plans were ahead of analysts' expectations and could bode well for chipmaking equipment companies Applied Materials and Lam Research. Both were rising more than 3% in premarket trading.

Analysts were also watching for commentary from TSMC over the Biden administration's proposal to impose AI chip restrictions.

The proposals would apply caps on U.S. exports to more than 120 countries. Taiwan was excluded from the proposed limits, but some of TSMC's customers could be affected. In addition, U.S. rules outlined on Wednesday tightened oversight on chip makers such as TSMC that ship advanced semiconductors to China -- requiring them to seek licenses for transactions unless the chips' performance falls below a technical threshold.

TSMC's Wei said he believed that the export controls were a manageable issue for the company and it is currently applying for special permits for clients who might be subject to the curbs, according to Reuters.

Write to Adam Clark at adam.clark@barrons.com

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January 16, 2025 08:39 ET (13:39 GMT)

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