A sense of optimism has returned to the intensely cyclical semiconductor industry.
Though 2023 was by no means a washout, particularly for artificial intelligence-focused chip makers like Nvidia Corporation (NASDAQ:NVDA), there has been no shortage of headwinds bearing down on the sector.
Sectoral threats ranged from collapsing Chinese demand and US-imposed export controls to inventory build-up and poor smartphone and computer sales.
Semiconductors are the underpinning of modern technology, making them highly exposed to downcycles in global technology demand.
Fortunately, Taiwan Semiconductor Manufacturing Company (TSMC), which serves as a bellwether for the manufacturing side of semiconductors, has just expressed cautious optimism for a rebound in demand.
The Taiwanese megacap, which is the largest global semiconductor manufacturer by a considerable margin, reported a fourth-quarter revenue beat driven by AI chip sales, particularly for cornerstone clients Apple Inc (NASDAQ:AAPL, ETR:APC) and Nvidia.
Though annual revenues fell by 4.5% to NT$2.16 trillion in 2023, attributed to a surplus in consumer electronics and moderated capital expenditure, the company anticipates growth in 2024, driven by its high-performance computing segment and increasing demand for AI chips.
Jefferies analysts added to the bullish semiconductor outlook in a Wednesday research note, suggesting that the semiconductor industry is expected to experience rapid growth through 2024 before peaking in the first half of 2025, with an anticipated 20% growth this year and mid-teen growth in 2025.
According to analysts: “The cycle's sharp reacceleration has so far been driven by the re-normalisation of sales post the inventory correction in segments like PCs and smartphones, the rise in memory pricing, as well as strong AI demand.”
This upcycle is predicted to elevate valuations, with a rebound in smartphone and Internet-of-Things device sales boding well for fabless chip designer Arm Holdings PLC (NASDAQ:ARM).
Meanwhile, Dutch lithography machine manufacturer ASML is tipped for a rebound once wafer fabrication equipment sales start to rise again.
2024 will also be the year when major chip designers such as Nvidia, AMD, Qualcomm and Mediatek will begin seriously looking into two-nanometre wafer capacity, marking the next generation of cutting-edge chips.
However, 2nm chips are not expected to be printed until 2025/26, presumably at the tail end of the next cyclical upswing.