Nvidia to Match Apple's Spending on TSMC as AI Drives Growth

Taiwan Semiconductor Manufacturing Company (TSMC) is poised to see a dramatic shift in its customer mix as Nvidia is set to become as important a client as Apple this year, driven by rapid growth in Nvidia's AI business. Bernstein estimates that while Nvidia's contribution to TSMC's revenue was between 5% and 10% in 2023, it will rise to the low 20s in 2025—matching Apple's share.

Key Growth Drivers

• AI-Driven Demand:
  TSMC's AI and backend businesses, including advanced packaging, are critical growth areas. Bernstein forecasts that AI will account for more than 20% of TSMC's total revenue this year.

• Product Mix and Capacity Management:
  TSMC is expected to manage changes in production schedules for Nvidia's Blackwell, Blackwell Ultra, and Rubin chips while maintaining full capacity. Nvidia's GPU business, which currently accounts for two-thirds of TSMC's AI-related demand, is set to benefit further as AI adoption accelerates.

• Earnings Growth:
  Bernstein projects TSMC's earnings per share to increase by 40% this year. Data center AI revenue is anticipated to jump from 6% of total revenue in 2023 to 14% in 2024, and exceed 20% in 2025.

• Backend Services Expansion:
  With its growing presence in backend services, TSMC is on track to surpass ASE Technology Holding Co to become the world's largest outsourced semiconductor assembly and test provider.

Market Implications and Analyst Views

• Customer Composition:
  Nvidia's rapid expansion in the AI space positions it to be as significant a customer for TSMC as Apple—a shift that highlights the evolving landscape in semiconductor demand.

• Long-Term Trends:
  While Nvidia's GPUs remain dominant in driving AI demand, the rise of ASIC chips—led by companies like Amazon and Google—presents a longer-term trend that could further reshape TSMC's revenue mix.

• Valuation and Outlook:
  Bernstein has maintained an “Outperform” rating on TSMC with a one-year price target of NT$1,430, implying a 30% upside. This optimistic view is supported by robust growth forecasts and TSMC's expanding role in the AI ecosystem.

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Conclusion

Nvidia's burgeoning AI business is not only driving its own growth but also reshaping its relationship with TSMC, setting the stage for the chipmaker to potentially see Nvidia become as significant a customer as Apple. With robust earnings growth projections and an expanding role in advanced backend services, TSMC is well-positioned to capitalize on the AI revolution, reinforcing its leading status in the semiconductor industry.

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