TSM or NVDA: Who Ya Got?
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What is the main topic discussed in this episode?
Investors still can't get enough of AI. You're listening to Motley Fool Money.
Welcome, Fools. I'm your host, Tim Beyers, and with me are two top Fools you've heard many times on these airwaves, Jason Hall and Travis Hoyum. Welcome back, guys, to Motley Fool Money. Is this like your second home? Any Fools love hearing you both?
It's my third. It's your third home? Okay, good. Good. Yeah, you hear me every Tuesday with Emily, so it's pretty regular.
It's just a little odd sitting in this guest chair here.
Yeah. It's nice, though, Travis, right? It's nice.
I'm grateful because I am also a fan. Thank you guys for being here. Hopefully, you're fully caffeinated because we have caffeinated results here. We are recording this on Friday for the Monday show for the Martin Luther King Jr. holiday. More on that in our second segment, but we're going to start with Taiwan Semiconductor because on Thursday, Taiwan Semi reported some pretty stellar fourth quarter numbers. Revenue jumped 25.5% year-over-year to $33.73 billion. Gross margin for the quarter was 62.3%. That's pretty good. Operating margin was 54%. Net profit margin was 48.3%. Those are bonkers numbers. Also in the fourth quarter, shipment of three nanometer chipsets accounted for 28% of total wafer revenue.
Five nanometer was 35% in seven nanometer. was 14%. This is important because the most advanced chips, so nanometer being really small. At three nanometer, these are the most advanced chips. The most advanced chips are accounting for 77% of total wafer revenue. There is a lot of AI being built, in other words, at Taiwan semiconductor factories. Management now expects between $52 billion and $56 billion in capital spending in this year. On a run rate basis, I'm going to go to you first on this, Travis. I think, I'm going to estimate that about 40% of Taiwan Semi revenue is going to be spent on capital spending. This is crazy. How long can this go on? What's your reaction to those Taiwan Semi numbers?
This can go on for a while, but it really all depends on how long this AI build-out lasts. If we're in the early phases and all of these companies, OpenAI is the head of the snake of their ecosystem, but that includes Corweave and Microsoft. You have, obviously, Google, Amazon, all of these companies. The money funnels back to Taiwan Semiconductor in one way or another. That's what's driving this demand, ultimately. You know, these businesses, though, generally are cyclical. We're seeing that in some of the memory space right now where there's shortages that's driving prices higher. So I think we're going to see this continued spending. They also have a lead that just nobody can nobody else can catch up with at the moment.
But keep in mind that this is typically a pretty conservative company, so their worry is overspending. I think that's going to level out these capital numbers, whereas another company that's a little bit more aggressive and may have a higher risk profile may actually even be spending more. But I think if you're a Taiwan semiconductor shareholder, you should love these numbers that we got recently.
Okay, Jason. Travis just laid down some knowledge there that is important. I'm going to take the question to you. He said that this is a conservative number, $52 billion to $56 billion in capital spending. That's conservative. You tell me, is this the floor of capital spending here right now?
I don't think we completely know the answer to that because of how the demand side is going to play out. It's going to take time.
What were Taiwan Semiconductor's fourth-quarter results?
To build more into what this number means for context, you guys remember back five or six years ago when the company went from $50 billion to $70 billion to $100 billion in capex over a five-year period. We're more than double that in a single year on an annualized basis. This is a big, big number. Yes, AI is driving it. Accelerated computing writ large is driving it. But it's also a company that has fully taken to heart that they do need to expand geographically. They need to de-risk from the Taiwan issue. That's a big part of this, too.
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