Strong Asml, Tsmc Forecasts Signal AI Spending Boom Is Intact

Strong ASML and TSMC Forecasts Signal Surging AI Chip Demand in 2024

AI Chip Demand Drives Semiconductor Industry Growth

By Zaheer Kachwala and Deborah Mary Sophia

April 16 (Reuters) - Strong forecasts from ASML and TSMC this week point to another quarter of hefty spending by American cloud-computing giants as they race to secure advanced chips needed for their artificial intelligence build-outs.

Impact on AI Chip Designers and Cloud Companies

The results suggest that demand stayed strong for AI chip designers such as Nvidia, Advanced Micro Devices and Broadcom, all of which rely on TSMC, the world's dominant producer of cutting-edge processors.

Growing investor pressure on large technology companies such as Microsoft, Meta and Amazon to deliver clearer returns on AI investment has raised doubts about how long the chip spending boom can last. Still, these companies are expected to spend over $600 billion this year on data centers.

TSMC's Positive Outlook and Capital Spending

"AI (demand) is so strong ... Our customers, and customers of customers - who are mainly the cloud service providers - continue to provide us with their very strong signal and positive outlook," TSMC CEO C.C. Wei said on an analyst call.

The company raised its annual revenue forecast on Thursday and said it was stepping up capital spending this year to meet AI chip demand.

ASML's Upbeat Forecast and Industry Implications

ASML, the world's largest supplier of chip-making tools, also lifted its annual revenue forecast on Wednesday.

"ASML's positive numbers generally paint a favorable picture for the semiconductor industry, even amid AI bubble concerns," said Giuseppe Sette, co-founder and president of investment analysis platform Reflexivity.

Shifting Demand Toward Advanced AI Processors

While overall AI chip appetite remains strong, demand is increasingly moving towards advanced processors required to make large language models operate or apply their training to answer questions, also known as inference.

Capacity Constraints and Industry Challenges

Supplier Reliance and Long-Term Agreements

CAPACITY CONSTRAINTS LIMIT GROWTH POTENTIAL

With demand for AI chips and equipment skyrocketing, the industry's heavy reliance on a handful of suppliers means chipmakers can only meet orders if they secure sufficient manufacturing capacity at those firms.

As a result, companies have taken to signing long-term agreements to secure capacity commitments for multiple years.

ASML's Perspective on Supply and Market Constraints

ASML CEO Christophe Fouquet said demand is set to outstrip supply for the foreseeable future, creating constraints across markets ranging from AI to smartphones and personal computers.

TSMC's Efforts to Expand Manufacturing Capacity

TSMC executives on Thursday also pointed to tight production capacity, with the company working aggressively to expand manufacturing capabilities in order to produce AI chips in mass quantities.

"Capacity is very tight, but we are working hard to make sure that we can meet customers' demand ... we are stepping up our capex investment to increase our capacity," Wei said.

(Reporting by Zaheer Kachwala and Deborah Sophia in Bengaluru; Editing by Devika Syamnath)