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TSMC posts Q1 profit beat, predicting surge in Q2 chip sales

Shares of Taiwan Semiconductor Manufacturing Company (TSM) are trading lower in Thursday's pre-market session, despite the company forecasting a nearly 30% surge in second-quarter sales. This dip in stock price comes on the heels of TSMC reporting its biggest yearly profit gain, driven by robust demand for its AI-powered semiconductor chips.

Yahoo Finance's Madison Mills breaks down the chipmaker's first-quarter earnings results, providing insights into what this means for the broader chip sector.

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Angel Smith

Video transcript

BRAD SMITH: Switching gears here at Taiwan Semiconductor shares are in the red. The world's largest chip maker forecasting sales to rise as much as 30% in its second quarter. This is sending chip stocks higher then tumbling and a wider sell-off. To break down what this means for the wider chip market, Yahoo Finance Reporter Madison Mills is here with us. Hey, Maddie.

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MADISON MILLS: Hey, Brad. So if you look at TSMC shares this morning, obviously, in the red. But if you look at the details of this print, there's really not a lot for folks to be mad about. I just want to go through some of the big beats, again, beating across every single major metric when it comes to this print here, the biggest profit growth in a year for TSMC, thanks to the AI boom. This is our number one trending ticker, by the way, on the Yahoo Finance platform this morning because of that profit growth for TSMC. Now the reason we want to look at this name beyond the earnings cycle is for two reasons. One, the indication that this has on the broader chip space and also because this could be a leading indicator heading into Apple's earnings.

So starting off on the overall chip sector, as you mentioned, Brad, we are starting to see signs of potential weakness for the most expensive and the most powerful chips that are available. We got a signal of that in ASML's earnings print even earlier in the day here, and we saw that in the details of TSMC as well for their 3mn offering. The lower the number is at the top of what I just said, the more powerful the chip is, and we saw a decline in demand for. That could be a sign that what analysts have been saying, that chips continue to be a one-time purchase, could continue to be an issue really important to note on Apple, though.

Sales contributions from smartphones declining 16% in the first quarter. That could point to headwinds in the overall iPhone business. That could be a bad sign for Apple coming into their earnings here. But it could also be part of seasonality. Those iPhone sales do tend to pick up in autumn. So we'll have to see. But Apple, reminder, is down 10% year to date here.