TSMC's core suppliers support the AI boom: the application of artificial intelligence will flourish

According to the financial news app Zhitong Finance, the CEO of TSMC (TSM.US), known as the "king of chip manufacturing", one of its core suppliers recently stated that the application of artificial intelligence is expected to show a vigorous development trend. It is predicted that the global demand for AI chips will stimulate the growth trend of the semiconductor industry in the coming years. This industry expert is trying to dispel investors' misjudgments and concerns about the speed and extent of global AI spending.

Hsu Ming-Chi, CEO of Scientech Corp, a core supplier of TSMC, stated in an interview on Wednesday that although the global chip market has grown by about 8% annually over the past 20 years, the growth rate of AI chips in the future should be much higher than this number.

"The vigorous development of the AI industry has just begun," Hsu Ming-Chi said. "For some of the most famous companies, the equipment we sell to them may increase by two to three times within a year."

After AI chip leader NVIDIA (NVDA.US) released solid financial data, chip stocks closely related to AI, including TSMC and SK Hynix, did not show a significant upward trend. This is mainly due to NVIDIA's financial report failing to meet investors' highest expectations, and stock market investors becoming increasingly skeptical about the profit prospects of tech giants in AI. These negative catalysts played a crucial role in triggering the massive collapse of chip stocks in the US stock market, making it difficult to justify the high valuations of chip stocks and the entire US stock market.

Some analysts have issued new warnings that the promise of AI reshaping the global economy and the profit prospects related to AI have not yet been proven with concrete data. On September 3rd, NVIDIA's stock price plummeted by 9.5%, evaporating up to $278.9 billion in market value in a single day, marking the largest single-day value loss in US stock history.

Nevertheless, Hsu Ming-Chi still believes that the global trend of enterprises deploying AI will not stop here, and he expects that his semiconductor company will achieve sustained strong growth in quarterly sales in the second half of 2024. He also expressed confidence in the future launch of more killer AI applications in the AI industry.

According to IDC's latest forecast in the "Global AI and Generative AI Spending Guide," software or applications will be the largest category of AI technology spending, accounting for more than half of the entire AI market in most forecasts. IDC predicts that the five-year compound annual growth rate of AI software from 2024 to 2028 will reach 33.9%.

In the secondary market, some stock market bottom-fishing troops advocating a "buy on dips" strategy seem to be looking for opportunities to bottom out chip stocks benefiting from the AI boom, such as NVIDIA. Some analysts are also betting that the setback chip stocks will attract a wave of bargain hunting.

This "buy on dips" sentiment on Wall Street is particularly strong, especially among the bullish investors who believe that this round of correction has squeezed out most of the "AI bubble." In the future market, tech companies that can continue to profit from the AI trend are expected to enter a new round of "major uptrend," such as NVIDIA, AMD, TSMC, Intel, and Broadcom, among other popular chip stocks. Chips are an indispensable core infrastructure for popular generative AI tools like ChatGPT, making these popular chip stocks the biggest winners of the AI boom The trend of the chip industry led by AI chips is becoming more and more clear. Data recently released by the Semiconductor Industry Association (SIA) in the United States shows that the global semiconductor industry's total sales in the second quarter of 2024 reached a high of $149.9 billion, an 18.3% increase compared to the second quarter of 2023, and a 6.5% increase from the already strong first quarter of 2024. In July, global semiconductor industry sales reached $51.3 billion, an 18.7% increase from July 2023, and a 2.7% increase from June 2024's $50 billion.

Public information shows that Scientech, headquartered in Taipei, China, produces core advanced packaging equipment for Taiwan Semiconductor's exclusive packaging technology known as Chip-on-Wafer-on-Substrate (CoWoS), providing important equipment support for Taiwan Semiconductor's advanced packaging technology. CoWoS advanced packaging is essential for NVIDIA and AMD's flagship AI chips, as well as for Amazon and Microsoft's self-developed AI chip packaging processes, making it crucial for the high-demand AI chip capacity. In May of this year, Kevin Zhang, Senior Vice President of Taiwan Semiconductor, stated that 99% of the world's AI chips are made by Taiwan Semiconductor. Since the beginning of 2024, Scientech's stock price has surged by nearly 80% in the Taiwan stock market.

The current demand for AI chips is incredibly strong, with the iteration of large AI models and the vigorous development of AI applications. It is likely to remain so for a long time in the future. The Taiwan Semiconductor management recently stated at an earnings conference that the demand-supply imbalance for CoWoS advanced packaging required for AI chips is expected to continue until 2025, with a slight easing possible in 2026