HBM Archives - Fountainheadinvesting

Taiwan Semiconductor Manufacturing (TSM) Hits It Out Of The Park

What a great start to the earnings season!

TSM is up 5% premarket after a massive beat and terrific guidance for AI demand.

TSM, the indispensable chip producer and source for some of the world’s largest tech companies, including Apple (AAPL), Nvidia (NVDA), AMD (AMD), and other chipmakers produced outstanding results this morning.

Q4 Metrics

Sales up 37% YoY to $26.88B

Earnings per American Depositary Receipt $2.24, up 69% YoY compared to $1.44

Both top and bottom line numbers surpassed analysts’ expectations.

“Our business in the fourth quarter was supported by strong demand for our industry-leading 3nm and 5nm technologies,” said Wendell Huang, senior VP and CFO of TSM in the earnings press release.

Strong AI momentum

TSMC’s brilliant Q4 results beat management’s guidance, and confirmed the strong AI momentum for 2025, disproving any notions about reduced or waning demand. With $300Bn in planned Capex by just the hyperscalers, I believe investors’ concerns are misplaced.

Management highlighted TSM’s growing collaborations with the memory industry during the earnings call, reinforcing confidence in strong and accelerated HBM demand, which bodes well for HBM makers like Micron (MU).

Closer interaction with HBM makers also suggests a strong foundation for the potential ramp of TSM’s 3nm node and upcoming 2nm node, which would be essential for AI development.

TSM has de-risked geo-political issues with its overseas factories in Arizona and Kumamoto. It also noted that it could manage further export controls from the US government to China, besides only 11% of their sales were to China.

“Let me assure you that we have a very frank and open communication with the current government and with the future one also,” said Wei when asked about the current and next U.S. administrations.

Any de-risking is a tailwind for increasing multiples and valuation for the stock. I had recommended TSM earlier stating that the geo-political concerns shouldn’t devalue the crown jewel of the semiconductor industry.

Q4 Revenue by Technology

TSM said 3nm process technology contributed 26% of total wafer revenue in the fourth quarter, versus 15% in the year-ago period, and 20% in the third quarter of 2024.

The 5nm process technology accounted for 34% of total wafer revenue, compared to 35% in the same period a year ago, and 32% in the third quarter of 2024. Meanwhile, 7nm accounted for 14% of total wafer revenue in the fourth quarter versus 17% a year earlier, and in the third quarter of 2024.

Total 3nm+5nm = 26+34 = 60% – that’s a fantastic high-margin business.

Advanced technologies (7nm and below) accounted for 74% of wafer revenue.

Q4 Revenue by Platform

High Performance Computing represented 53% of net revenue, up from 43% in the fourth quarter of 2023. – Nvidia, AMD, Broadcom.

The company’s smartphone segment represented 35% of net revenue, versus 43% in the year-ago period. – Apple

Q4 Revenue by Geography

Revenue from China — Taiwan Semi’s second-biggest market by revenue — accounted for 9% of the total net revenue in the period, down from 11% in the year-ago period and in the third quarter of 2024.

North America accounted for 75% of total net revenue coming from it, compared to 72% a year earlier, and 71% in the third quarter of 2024.

Outlook

“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,” said Huang.

TSM expects capital expenditure to be between $38B to $42B in 2025. The amount is up to 19% more than analysts’ expectations, according to a Bloomberg report.

In the first quarter of 2025, TSM expects revenue to be between $25B and $25.8B (midpoint at $25.4B), consensus of $24.75B. That’s a raise.

Micron (MU) Rating Upgrade to Buy: Strong Earnings and HBM Demand Drive Optimism

Micron (MU) Rating Upgrade to Buy from Hold, $100.

Results expected this afternoon were very good, and I am more optimistic about the guidance. I was hesitant to add or recommend buying because it looked overpriced compared to its historical average and it had doubled in the past year.

Nvidia’s comments on needing more high bandwidth memory (HBM) vendors like Samsung, suggest the Micron is more likely to have challenges meeting demand. Unlike the past year when they had to discount inventory.

https://www.barrons.com/articles/micron-technology-stock-earnings-d6cd03f9?mod=BRNS_ENG_NAS_EML_BULLETIN_AUTO_NAH

With this beat and these upgrades from Wall Street analysts in Barron, I would start buying.

“Micron is likely to report continued soaring demand for “high bandwidth memory,” or HBM—parts that combine multiple DRAM chips to improve data-processing speeds.

TD Cowen analyst Krish Sankar wrote in a recent research note previewing the quarter that when it comes to Micron, “HBM remains the centerpiece of attention.” Last week, he lifted his target for the stock price to $120, from $100. He said there is a “potential scenario” where the stock can reach $150, for a gain of more than 50% from current levels.”

For the May quarter, the Street is projecting revenue of $5.98 billion, with an adjusted profit of 8 cents a share. Analysts expect the rebound to continue from there. Estimates for the August quarter now point to $6.86 billion in revenue and an adjusted profit of 81 cents a share.

FQ3-24

Revenue 6.6Bn Expected 5.8Bn

EPS $0.17 Expected $0.08

FQ3-24

GAAP⁽¹⁾ Outlook

Non-GAAP⁽²⁾ Outlook


Revenue	$6.60 billion ± $200 million	$6.60 billion ± $200 million
Gross margin	25.5% ± 1.5%	26.5% ± 1.5%
Operating expenses	$1.11 billion ± $15 million	$990 million ± $15 million
Diluted earnings per share	$0.17 ± $0.07	$0.45 ± $0.07

Wedbush analyst Matt Bryson wrote in a recent research note that recent trends in prices for both DRAM and NAND memory chips suggest Micron will beat its guidance for the quarter. Bryson, who has an Outperform rating on Micron shares, said he expects positive commentary from the company on the outlook for HBM demand.

“Since last summer, management has provided consistently optimistic commentary around anticipated progress with HBM in light of the technology being a derivative of their highly successful standard DRAM nodes,” Bryson writes.

Meanwhile, analysts say the balance between supply and demand has stabilized following a supply glut that spanned multiple quarters.

“Customer inventories have largely normalized, demand conditions across markets appear stable, and supply growth remains muted,” Raymond James analyst Srini Pajjuri wrote in a research note previewing the quarter. “In addition, HBM is a significant secular driver that could add $1.5-$2 in incremental EPS at the next peak.”

Pajjuri maintains an Outperform rating on the stock.