Here’s a jaw-dropping fact: while everyone’s obsessing over artificial intelligence (AI), Taiwan Semiconductor Manufacturing (TSMC) is quietly raking in billions from a business that’s been around for years. But here’s where it gets controversial: is TSMC’s reliance on its legacy smartphone segment a hidden strength or a ticking time bomb? Let’s dive in.
The rise of AI has undeniably reshaped the tech world. It’s no surprise that nine of the top 10 companies by market cap are tied to this revolutionary technology. Among them is TSMC, the undisputed king of chip manufacturing. With the world’s most advanced foundry, TSMC produces a staggering 90% of the globe’s cutting-edge semiconductors, powering everything from high-end computing to AI systems. This dominance has sent its stock soaring, adding over $1 trillion in market cap since AI’s explosive growth in early 2023.
And this is the part most people miss: while TSMC’s high-performance computing (HPC) segment—think data centers and AI model training—now accounts for 57% of its revenue, it wasn’t always the star of the show. Until early 2022, the company’s biggest cash cow was its smartphone segment. Yes, the same smartphones that have seen sluggish sales in recent years due to economic headwinds like record inflation, which forced consumers to hold onto their devices longer.
But here’s the twist: the smartphone market is bouncing back. In the third quarter, smartphones made up 30% of TSMC’s sales, thanks in part to Apple’s iPhone 17 success. Apple, one of TSMC’s largest customers (24% of revenue in 2024), just reported record quarterly earnings of $102.5 billion, up 8% year over year. CEO Tim Cook even hinted that the December quarter could be the biggest in the company’s history. So, is TSMC’s legacy business staging a comeback?
Stepping back, TSMC’s overall performance is impressive. In Q3, revenue hit $33.1 billion, a 41% year-over-year jump, while earnings per ADR soared 39% to $2.92. Despite its growth, TSMC trades at a modest 30 times trailing-12-month earnings, slightly below the S&P 500’s 31 multiple. That’s a bargain for a company with multiple growth engines.
Here’s the burning question: As AI continues to dominate headlines, should investors worry about TSMC’s reliance on its legacy smartphone segment, or is this diversification a strategic advantage? Let us know your thoughts in the comments below. After all, in the fast-paced world of tech, nothing is certain—except perhaps TSMC’s knack for staying ahead of the curve.
