The U.Ssemiconductor industry is poised for a critical performance season as Texas Instruments, a giant in the simulation chip sector, is set to announce its earnings this weekThe focus on semiconductor stocks, recognized as pivotal drivers in what's been termed a "long-term bull market" since 2023, signals an impending influx of quarterly reports that could define the tech landscape moving forwardAnalysts at Goldman Sachs have highlighted that Taiwan Semiconductor Manufacturing Company (TSMC) has delivered results that surpass expectations, reviving optimism around the surging demand for AI chipsThis demand is not just a passing trend but has sparked significant growth in semiconductor manufacturing and testing equipment as wellAs such, Goldman anticipates robust earnings announcements in the near future from major chip manufacturers listed on U.Sstock exchanges.

Traders are starting to speculate about a potential resurgence of inflation in what they call the "2.0 era." This concern has led to fears that the Nasdaq Composite and the S&P 500 indices, both hovering near historical peaks, might soon face a downturn

Advertisements

Thus, the strong performance reports from chip giants that wield substantial influence over these indices could be vital in bolstering investor confidence in technology stocks driven by AI, and the broader bullish trajectory of U.Sequities.

In a report of significant interest, Goldman Sachs has documented that TSMC's fourth-quarter performance, along with projections for 2025, surpasses expectations by a notable marginThis optimism is indicative of a booming market for AI chips, along with a buoyant outlook for global semiconductor wafer manufacturing equipment and materials suppliers.

Goldman Sachs’ semiconductor team emphasizes the accelerating growth of TSMC’s earnings, which is supported by management's renewed confidence in the long-term trajectory of chip foundry servicesThey underscored the central drivers of high-performance computing and enterprise-level storage bolstered by AI chips

Advertisements

Their optimistic outlook extends to several U.Schip behemoths such as NVIDIA, for which Goldman has reiterated a "buy" rating, including in its list of stocks rated as "high conviction." Subsequent bullish ratings were also extended to other companies like Broadcom, Marvell, Arm, Credo Technology, and Micron Technology.

In a parallel analysis, another financial giant, Bank of America, recently stated that by 2025, semiconductor stocks could remain among the best performers in the U.SmarketsThe anticipated growth is expected to extend beyond the ‘AI trinity’ of chip firms benefiting from the AI surge, potentially embracing analog chips and electric vehicle semiconductor stocks, which have historically underperformed against the broader market.

The ‘AI chip trinity’ identifies NVIDIA, Broadcom, and Marvell Technology as key players listed on Bank of America’s preferred semiconductor stocks for 2025. This list also honors the semiconductor equipment titan Lam Research, automotive chip leader ON Semiconductor, and one of the leaders in EDA software, Synopsys.

Overall, analysts at Bank of America foresee that by 2025, semiconductor market sales could grow by around 15%, reaching upwards of $725 billion, rising from a strong year in 2024. They pointed out that while this represents a robust growth trajectory, it is slightly less aggressive than this year's estimated growth rate of approximately 20%. They further noted that semiconductor market cycles typically last about 2.5 years, followed by a year-long decline, and that we are only halfway through the current upcycle that began in late 2023.

According to the latest industry forecasts from the World Semiconductor Trade Statistics (WSTS), the global market for automotive and analog chips, which has struggled since 2022, is expected to rebound significantly by 2025. WSTS has notably increased its forecasts for the 2024 and 2025 semiconductor market sizes compared to earlier predictions, anticipating a robust 19.0% growth in 2024, bringing the market size to $627 billion

Advertisements

Furthermore, they project an additional 11.2% growth in 2025, driving the market to approximately $697 billion.

WSTS predicts that the growth in the semiconductor market in 2025 will primarily be propelled by the strong demand for enterprise-level storage chips driven by AI training and inference capabilities, along with significant contributions from AI logic chipsThe overall market for logic chips encompassing CPUs, GPUs, and ASICs is anticipated to spike by around 17%, while storage chip markets, covering areas like HBM and enterprise-level SSDs, could see growth exceeding 13% following a significant rally in 2023.

The strength of TSMC has been a focal point of analysis, with recent disclosures indicating exceptional demand for AI chips that are expected to firmly bolster future profitabilityLast Thursday, TSMC released details of its Q4 2024 performance followed by a forward-looking commentary that eclipsed Wall Street expectations

Goldman echoed sentiments about TSMC’s High-Performance Computing (HPC) business segment, particularly in AI chip and server CPU manufacturing, demonstrating stellar revenue growth that hit a remarkable 69% year-on-year increase, which situates it favorably compared to the previous quarters' growth rates of 57% and 65%.

Looking ahead, TSMC management has projected a 25% increase in overall revenue for 2025, forecasting that AI-related revenue could potentially double year-on-yearAdditionally, the anticipated capital expenditure is projected to be between $38 billion and $42 billion, indicating a substantial increase from the previous yearCollectively, these forecasts reflect a compounded annual growth rate (CAGR) of roughly 20% over the next five years, with AI-related revenue poised to grow by approximately 45%.

Goldman Sachs views TSMC’s latest performance and forecasts as crucial signals for organizations involved in the expansion of AI infrastructures, such as NVIDIA and Broadcom, as well as those providing semiconductor manufacturing and testing equipment – a space that includes Applied Materials, Lam Research, and KLA Corporation

alefox

The analytics team also pointed out that after a rather stunted growth period in the foundry sector, where revenues saw a mere 6% year-on-year increase, the outlook for 2025 now looks considerably promising with an anticipated uptick driven by improved conditions within the fabless semiconductor sector.

Amidst an environment of climbing demand for AI chips, the semiconductor market is expected to hit new heights as a significant growth trajectory emergesRecent data from the Semiconductor Industry Association indicated that in November 2024, the global semiconductor market sales reached around $57.8 billion, marking a substantial year-on-year increase of 20.7% over the previous year's figuresThis remarkable sales performance has continued to trend upwards, with the Americas witnessing a staggering 54.9% increase in year-on-year sales.

AMD’s CEO, Lisa Su, recently indicated that the demand for AI chips, particularly within data centers, has far exceeded initial expectations

Projections suggest that the AI chip market for data centers could skyrocket to reach an astounding $400 billion by 2027 and further escalate to $500 billion by 2028—indicating a striking CAGR of over 60% between late 2023 and 2028.

TSMC’s HPC revenues have shown significant growth as well, marking a sequential growth of 19% and an impressive year-on-year increase of 69% for Q4 2024. While there have been some recent supply chain concerns highlighted by Goldman regarding NVIDIA’s latest architecture developments, the overarching sentiment remains that TSMC’s insights into the AI chip demand landscape paints a positive picture for infrastructure developers in this sector.

Goldman believes that the projected capital expenditure guidance from TSMC suggests an optimistic outlook for suppliers of semiconductor manufacturing and testing equipmentWith investments expected in the range of $38 billion to $42 billion, TSMC's commitment reinforces confidence among suppliers and stakeholders alike.

As TSMC, Samsung Electronics, and Intel ramp up their production capabilities for advanced AI chips based on process nodes of 7nm or less, TSMC's forthcoming facilities in the U.S., Japan, and Germany are set to bolster production further starting in 2025. These enhancements will lead to increased procurement of advanced photolithography machines, cutting-edge packaging equipment, etching machines, and other high-end semiconductor apparatus necessary for large-scale chip fabrication

Leading manufacturers in this semiconductor tooling landscape include ASML, Applied Materials, KLA, Tokyo Electron, Shin-Etsu Chemical, and BE Semiconductor.

Goldman noted that TSMC intends to allocate approximately 70% of its capital expenditure for advanced chip fabrication technologies, with 10-20% dedicated to specialty chip nodesThis strategy indicates a slight decrease in the allocation for advanced nodes compared to prior capital spending discussionsHowever, increases in funding for advanced packaging, testing, and mask production highlight a strategic pivot toward diversifying TSMC’s capabilities.

Given TSMC's forecast for capital expenditures and the favorable outlook for the semiconductor manufacturing landscape, Goldman anticipates that investor sentiment towards logic chips and GPU sectors will also improve, particularly in light of potential declines in Intel and Samsung’s output