AI boom reshapes Wall Street as TSMC joins trillion-dollar club

TSMC, listed in both Taiwan and New York, briefly broke the one trillion dollar market capitalization barrier on Monday, putting it ahead of Tesla as the seventh most valuable technology giant on the stock market.

Also on Monday, Alphabet, Apple and Meta all hit all-time highs.

The top ten of the world's most valuable companies is headed by Microsoft and Apple, closely followed by AI chip designer Nvidia.

Their global stock market valuations exceed three trillion dollars on Wall Street.

Alphabet and Amazon, which recently topped the two trillion dollar mark, follow in an ever-changing ranking.

The Saudi oil giant Aramco slipped into sixth place followed by Meta, TSMC and Tesla.

"The semiconductor industry is now the leading sector in the S&P 500," noted CFRA analyst Angelo Zino recently.

"It's taken over the last 15 or 18 months. That shows you how much the world has changed."

The explosion in worldwide demand for chips, boosted by the rise of computing-intensive generative AI, promises sustained expansion for the industry.

Chip-makers are not only attracting investors but also a host of government subsidies.

The Biden administration, for example, has granted tens of billions of dollars in financial support over several years to help build chip factories in the United States.

Worldwide sales of semiconductors, which include integrated circuits, microprocessors and memory chips, are expected to reach $611.2 billion in 2024, a record for the industry, according to the Semiconductor Industry Association.

Sales are expected to jump by 16 percent in 2024 and a further 12.5 percent in 2025, according to the trade organization.

Nvidia, the designer of graphics processing units (GPUs) , is the frontrunner of the craze, and has triumphed on Wall Street in recent months.

Nvidia's GPU's are a crucial component to building generative AI and since the November 2022 launch of ChatGPT, its market capitalization has increased eightfold.

In mid-June, the Santa Clara, California-based group even briefly became the world's most valuable publicly traded company, ahead of Microsoft at $3.3 trillion.

"Nvidia's GPU chips are the new gold or oil of the technology sector," said analysts at Wedbush Securities.

For them, Nvidia, Apple and Microsoft are now engaged in "the race for the four trillion dollar billion market valuation."

TSMC, with most of its factories based in Taiwan, is well placed to also reap the rewards.

While Nvidia, which only designs chips but does not manufacture them, remains discreet about its supply chain, it is widely believed that the bulk of its products are manufactured by TSMC.

The Taiwanese giant, which controls more than half of the world's semiconductor demand, earlier this year posted first-quarter sales of $18.87 billion, up 13 percent year-on-year while net income climbed 9 percent to $6.97 billion.

As for Nvidia, its quarterly profit reached $14.9 billion, a seven-fold increase over the previous year, on sales of $26 billion.

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TSMC - TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY

Trillion-dollar chip giant: Five things to know about TSMC
Taipei (AFP) July 8, 2024 - Taiwanese semiconductor titan TSMC briefly joined a rarefied club of companies valued at more than $1 trillion on Monday.

Here are five things to know about the Taiwan Semiconductor Manufacturing Company:

- 'Godfather' -

MIT and Stanford graduate Morris Chang founded TSMC in 1987 after an extensive tech industry career in the United States.

Taiwan's government was trying to set up a semiconductor industry that would compete with the countries, such as Japan, that led the sector at the time.

TSMC has become one of the world's most important companies in the nearly four decades since -- a leader in producing the chips that help run everything from smartphones to advanced robots.

Chang, who was born in mainland China in 1931, retired from TSMC in 2018. He was revered in Taiwan by then and often described as the "godfather" of the island's chip industry.

Taiwan awarded him one of its highest medals of honour in April.

- AI boom -

Thanks to the revolution in artificial intelligence sparked by the success of ChatGPT, TSMC has been riding a massive wave of demand for the advanced semiconductors needed to train and run AI apps.

It works closely with AI leader Nvidia, which became the world's most valuable traded company in June with a market capitalisation of around $3.3 trillion.

TSMC also supplies Nvidia competitors Qualcomm and AMD, among others, and such is the demand for its chips that production has been reportedly booked for years in advance.

Arguably its best-known client is Apple, which relies on TSMC chips for the latest iPhones and MacBooks.

"We have established a research pipeline for technology to enable leading-edge AI devices, circuits, and systems for decades to come," TSMC says on its website.

- Fears about China -

Taiwan is one of the most important links in the supply chain for semiconductors, the lifeblood of the modern global economy, and TSMC is its crown jewel.

However, China claims the self-ruled island as its territory and has not ruled out the use of force to bring it under its control.

Beijing has ramped up pressure on Taipei in recent years, including with large-scale military drills, sparking worries in capitals and boardrooms around the world about its chip industry.

US Commerce Secretary Gina Raimondo told a Congressional hearing in May that a Chinese invasion of Taiwan and seizure of TSMC would be "absolutely devastating".

"Right now, the United States buys 92 percent of its leading-edge chips from TSMC in Taiwan," she said.

- US, Japan expansion -

TSMC has faced pressure to diversify away from Taiwan, where the bulk of its factories are based, to guard against any further escalation of the tussle between Washington and Beijing.

It is building two "fabs" -- manufacturing plants -- in the United States and announced plans for a third in April, bringing its total investment in the state of Arizona to $65 billion.

But its US projects have faced obstacles in the past year, which the company attributed to a lack of human resources because making chips requires highly specialised skills.

TSMC also launched an $8.6 billion plant in Japan this year -- a coup for the country as it vies with the United States and Europe to woo top chip firms with huge subsidies.

With "strong" Japanese government support, TSMC has announced a second factory to make more advanced chips. The firm is also planning a new factory in Germany -- its first in Europe.

- Quake threat -

Geopolitics is not the only worry for TSMC and Taiwan's chip industry.

The island is prone to natural disasters, too.

It sits on the "Ring of Fire", an arc of intense seismic activity along the Pacific Rim, and -- much like neighbouring Japan -- has a long history of catastrophic quakes.

TSMC was one of the firms that halted production because of a 7.4-magnitude earthquake in April this year, the most severe to hit Taiwan in decades.

It told customers the impact from the quake was minimal.

TSMC has invested in a number of seismic resistance features at its facilities to reduce damage and casualties, including an earthquake early warning system, according to its website.

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