Trump Comments Hit TSMC Shares Despite AI-Driven Growth

Leading chipmaker TSMC is expected to announce strong quarterly earnings despite a recent drop in its shares caused by comments from former U.S. President Donald Trump concerning Taiwan. While TSMC's stock has surged 68% this year due to AI demand, political concerns cast a shadow over its latest financial performance.

TSMC, the leading manufacturer of chips used in artificial intelligence applications, is expected to report robust quarterly earnings on Thursday. However, its shares in Taipei slid by 4% following remarks by Donald Trump on Taiwan. Although TSMC's stock, along with the broader Taiwan market, has reached record highs, it began to decline on Wednesday. Trump, a U.S. presidential candidate, stated that Taiwan 'did take about 100% of our chip business' and should compensate the U.S. for its defense.

TSMC's American Depository Receipts dropped by 8% on Wednesday, although a 30% profit increase for the second quarter is expected to be reported later on Thursday. The broader Taiwan market saw a 2% decrease early on Thursday. 'Trump's comments may have a political impact but will not alter the market fundamentals,' said James Huang, chairman of Taipei-based Franklin Templeton SinoAm Securities Investment Management.

'Major companies remain very optimistic about AI and are investing heavily in this area. We do not see Trump's remarks changing this trend,' Huang added. TSMC, the world's largest contract chipmaker, whose clients include major firms like Apple and Nvidia, has gained significantly from the growing AI adoption.

TSMC is projected to announce a net profit of T$238.8 billion (US$7.33 billion) for the quarter ended June 30, based on an LSEG SmartEstimate compiled from 21 analysts. SmartEstimates give more weight to the forecasts of consistently accurate analysts. This estimate is a significant increase from the 2023 second-quarter net profit of T$181.8 billion.

Last week, TSMC reported a substantial rise in its Taiwan-dollar denominated second-quarter revenue, surpassing market expectations. It will also provide third-quarter revenue guidance in U.S. dollars. On Wednesday, shares in ASML, a major supplier of chip-making equipment for which TSMC is a key customer, dropped sharply due to concerns that U.S. government pressure could lead to stricter export restrictions to China.

The investor anxiety overshadowed the strong second-quarter earnings of Europe's largest technology company, which beat forecasts. PEAK SEASON

TSMC, during its quarterly earnings call starting at 0600 GMT on Thursday, will update its outlook for the current quarter and the full year, including its capital expenditure, as it accelerates production expansion. TSMC is investing billions into building new factories overseas, including $65 billion on three plants in the U.S. state of Arizona, although it has stated that most manufacturing will remain in Taiwan.

In its April earnings call, TSMC upheld its capital spending guidance for this year at $28 billion to $32 billion, compared to last year's $30.45 billion, stating that 70% to 80% of that amount would go toward advanced technologies. The latter half of the year typically marks the peak season for Taiwanese tech companies as they rush to supply customers ahead of the year-end holidays in major Western markets.

The AI boom has significantly raised the stock prices of Asia's most valuable publicly traded company, with TSMC's Taipei-listed stock rising 68% this year in comparison to a 30% gain for the broader market. TSMC, often referred to in Taiwan as the 'sacred mountain protecting the country' due to its pivotal role in Taiwan's export-driven economy, faces limited competition, though Intel and Samsung are attempting to challenge its market dominance. ($1 = 32.5700 Taiwan dollars)

(With inputs from agencies.)