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Taiwan Semiconductor Manufacturing Corp. executives may have slapped down some of Wall Street’s euphoria over artificial intelligence, reflected in the recent runup in the stock prices of several chip makers, with cautious comments about the sustainability of the current demand for AI chips.
TSMC
TSM,
currently the world’s largest contract manufacturer of semiconductors, acknowledged in its earnings call with analysts that there has been strong demand for processors related to AI, especially in the data center, but they added that it is not clear how sustainable that demand will be. It also said AI would not offset the current sluggish global demand for semiconductors.
“The short-term frenzy about the AI demand definitely cannot extrapolate for the long term,” TSMC Chairman Mark Liu told analysts on a conference call. “Neither can we predict the near future, meaning next year, how the sudden demand will continue or will flatten out.”
TSMC said AI related processors currently account for 6% of its revenue, but it was not enough to offset the overall macroeconomic impact of the current downturn in demand for semiconductors and is forecasting its full year revenue to be down 10%. It said that AI processor demand could grow at about 50% on a compounded annual growth rate for the next five years.
The company also pushed out the production start date for its new manufacturing plant in Arizona to 2025, saying it was having a hard time getting skilled workers for semiconductor equipment installation, and it was sending experienced technicians from Taiwan to train local workers for a short period of time.
“Management has run its own models and projects a 50% CAGR for its AI revenue and expects it to reach a low-teens percentage of the total [revenue] by 2028,” said Needham & Co. analyst Charles Shi in a note to clients. “No more details were
given on the assumptions behind the 50% CAGR projection.”
Several semiconductor stocks fell in reaction, including shares of high-flyer Nvidia Corp.
NVDA,
which is currently one of the biggest early winners in the AI arms race. The company makes graphics processors (GPUs) designed to run compute-intensive AI applications, and they have become even more in demand in recent months since ChatGPT was launched late last year. Nvidia forecast that its fiscal second quarter will see a huge boost from AI demand, forecasting around $11 billion in revenue, a record high for the chip designer. Its shares fell 2.42% Thursday.
Shares of Intel Corp.
INTC,
Advanced Micro Devices Inc.,
AMD,
and Broadcom Inc.
AVGO,
all companies expected to see some benefits from sales of chips for data centers were all down. The Philadelphia Semiconductor Index
SOX,
was off 2.61%
While TSMC executives also said the demand for generative AI applications, such as ChatGPT, will also increase capital spending, investors were instead likely focused on the fears about current sustainability, and the company’s view on the overall global demand for semiconductors.
“The company’s outlook has deteriorated versus three months ago, largely driven by reduced optimism around macro trends, weaker than expected China recovery, and ongoing customer inventory digestion,” said Evercore analyst C.J. Muse in a note to clients.
The bad news, good news scenario from the world’s largest semiconductor maker indicated that the chip downturn may not be over, and that AI is not the ultimate savior that some might believe.
