(Bloomberg) — Taiwan Semiconductor Manufacturing Co. raised its 2024 sales growth target after quarterly results beat estimates, easing concerns about global chip demand and the sustainability of an AI hardware boom.

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The main chip maker of Nvidia Corp. and Apple Inc. now expects sales to rise about 30% in U.S. dollars this year, up from previous forecasts of around the mid-20%. This came after TSMC reported better-than-expected earnings for the September quarter. And it expects capital spending to rise in 2025 from around $30 billion this year.

TSMC's outlook should help address concerns that investors have misjudged AI and semiconductor demand. Those fears crystallized after ASML Holding NV, the chip industry's linchpin, stunned markets by reporting about half the orders expected by investors. On Thursday, CEO CC Wei tried to dispel those doubts.

“The demand is real and I believe this is just the beginning,” Wei said, echoing a number of executives including Nvidia’s CEO. As for overall chip demand, “everything has stabilized and is starting to improve.”

Its American depositary receipts rose more than 6% in premarket trading in New York. Nvidia shares rose by around 2.5%. Shares of Japanese chip equipment makers including Lasertec Corp. pared losses in Tokyo, while Infineon Technologies AG rose along with industry peers in Europe.

Shares of TSMC have risen more than 70% this year, outperforming many of Asia's biggest technology companies, driven by strong sales of Nvidia chips that are crucial to the development of artificial intelligence.

For a live blog of TSMC's earnings, click here.

Taiwan's largest company raised its 2024 revenue forecast just a few months ago in July, lowering expectations for AI infrastructure spending from companies like Microsoft Corp. and Amazon.com Inc. underlined. The steady adoption of artificial intelligence is also expected to help boost sales of iPhones and other gadgets in the long run.

Still, investors had been watching for differences in TSMC's outlook after ASML blamed a slower-than-expected recovery in the automotive, mobile and PC markets for the failure of chip factory expansion plans. AI remains a bright spot, executives said.

“TSMC is not just an AI machine,” said Ben Barringer, technology analyst at Quilter Cheviot. “They are much better positioned than Intel and Samsung, which have had their own well-documented problems. TSMC has positioned itself well and should a real downturn hit the sector it should be in a strong position to weather this and emerge in a good position.”

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What Bloomberg Intelligence says

TSMC's forecast for a gross margin of over 57% for Q4 (versus consensus of 54.7%) – coupled with the rapid increase in N3 node sales – suggests continued strong demand for its AI chips from Nvidia and others, which agrees with our point of view. Revenue growth of around 25% in 2025 appears feasible according to our calculations, supported by TSMC's leadership in 3 and 5 nm nodes and its advanced proprietary CoWoS semiconductor packaging technology.

– Charles Shum, analyst

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On Thursday, TSMC reported a better-than-expected 54% rise in September quarter net profit to NT$325.3 billion (US$10.1 billion). For the final quarter, the company expects revenue of $26.1 billion to $26.9 billion, topping the estimate of $24.9 billion.

The world's largest maker of advanced chips is one of the biggest beneficiaries of the global race to develop artificial intelligence. Its shares have more than doubled since that boom began in late 2022 with the launch of OpenAI's ChatGPT. TSMC's market capitalization briefly exceeded $1 trillion in the United States.

But even before ASML, some investors had become cautious about the trend in global AI spending. They wonder whether big tech firms like Meta Platforms Inc. and Alphabet Inc. will continue investing in chips and data centers without having a truly killer application.

The risks of data center overcapacity and geopolitical issues have unsettled some investors. Bloomberg reported this week that Biden administration officials have discussed limiting sales of advanced AI chips from Nvidia and other American companies on a country-by-country basis.

On Thursday, Wei said he expected sales of AI server processors to more than triple this year, representing a percentage of total sales in the mid-teens in 2024.

In the longer term, TSMC aims for rapid international expansion.

The company is planning additional plants in Europe with a focus on the artificial intelligence chip market, according to a senior Taiwanese official. In addition, there is ongoing construction work in Japan, Arizona and Germany.

– With support from Vlad Savov, Cindy Wang, Mayumi Negishi, Lianting Tu and Henry Ren.

(Updates with Nvidia shares and analyst commentary from fifth paragraph.)

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