Taiwan Semiconductor's fourth quarter results and 2025 performance outlook were both significantly better than expected, and the positive performance outlook suggests optimistic growth momentum for AI Chips, as well as Global Semiconductor wafer fabrication equipment (WFE), testing equipment, and semiconductor materials suppliers.
As the American chip giant focuses on analog chips.$Texas Instruments (TXN.US)$This week, earnings will be announced, and since 2023, one of the core driving forces of this "Long-Term Bull Market" in the USA has been the chip stocks, which are about to welcome a new earnings report season.
In the view of Goldman Sachs' semiconductor analyst team, the chip manufacturing giant from Taiwan. $Taiwan Semiconductor (TSM.US)$ The latest announced earnings and outlook reveal that AI Chips are still experiencing explosive demand growth, while semiconductor manufacturing and testing equipment are also in a strong growth cycle due to the recovery in chip demand. Therefore, Goldman Sachs believes that the American chip giants are about to consecutively announce strong earnings data and future performance outlook.
Trump officially returned to the White House on January 20, and traders began to anticipate that the "Trump 2.0 era" might drive inflation to return, raising concerns among investors about the current historical peak.$Nasdaq Composite Index (.IXIC.US)$And$S&P 500 Index (.SPX.US)$Entering a potential downtrend, the strong performance growth data of the semiconductor giants with high weight in the Nasdaq and S&P 500 is crucial for boosting the 'AI faith' among global technology stock investors and for the overall bullish trend in the US stock market.
Goldman Sachs, the Wall Street financial giant, pointed out in its latest research report that the fourth-quarter performance and 2025 performance outlook from Taiwan Semiconductor, the 'king of chip foundries' headquartered in Taiwan, significantly exceeded expectations, indicating a positive performance outlook and optimistic growth momentum for AI Chips and global Semiconductors Wafer Fabrication Equipment (WFE), testing equipment, and semiconductor raw material suppliers.
Overall, Goldman Sachs' Semiconductor Industry Analysis team believes that Taiwan Semiconductor's performance growth continues to accelerate, and the management's confidence in the long-term growth trajectory of the chip foundry business has completely restored, supporting the institution's positive constructive views on key driving factors in high-performance computing, network infrastructure, and enterprise storage fields dominated by AI Chips. Goldman Sachs reaffirms its positive outlook for US semiconductor giants, including those with high weight in the Nasdaq and S&P 500 Index.$NVIDIA (NVDA.US)$Goldman Sachs reaffirms the 'Buy' rating and continues to be included in Goldman Sachs' 'Conviction Buy List', reiterating its views on.$Broadcom (AVGO.US)$、$Marvell Technology (MRVL.US)$、 $Arm Holdings (ARM.US)$ 、$Credo Technology (CRDO.US)$And$Micron Technology (MU.US)$The "Buy" stock rating.
Previously, another major Wall Street firm, Bank of America, stated in a recent report that chip stocks could still be one of the best-performing sectors in the US stock market in 2025, and the contribution to growth is expected to expand from chip companies that benefit broadly from the AI boom, such as the "Big Three AI Chip companies," to analog chips and electric vehicle chip stocks that have long underperformed the US stock market.$PHLX Semiconductor Index (.SOX.US)$the "non-AI" chip stock symbols.
The "Big Three AI Chip companies" in the US chip sector – NVIDIA, Broadcom, and Marvell Technology – are all on Bank of America's 2025 "Preferred Chip Stocks List," which also includes semiconductor equipment giants.$Lam Research (LRCX.US)$and leading Automotive AI Chips manufacturers.$ON Semiconductor (ON.US)$and one of the leaders in EDA Software.$Cadence Design Systems (CDNS.US)$。
Overall, the Bank of America analysis team expects the overall sales of the semiconductor market to grow by about 15% in 2025, building on a strong growth in 2024, reaching 725 billion USD. "This still represents a very strong growth pace, although it is a decline compared to this year's forecasted growth rate of 20%." "The demand boom cycle in the semiconductor market typically lasts about 2.5 years (followed by a decline cycle lasting up to one year), and we are currently only at the mid-stage of this semiconductor upcycle that began in the fourth quarter of 2023."
According to the latest forecast from the World Semiconductor Trade Statistics (WSTS), global automotive chips and analog chips, which have seen persistent weakness in demand since 2022, will experience the long-awaited "recovery moment" in 2025.
WSTS has significantly raised the forecast data for the semiconductor market size in 2024 and 2025 in its latest fall forecast compared to the spring forecast, expecting that the global semiconductor market will grow by 19.0% year-on-year to 627 billion USD in 2024. WSTS predicts that the global semiconductor market size will continue to grow in 2025 based on the 2024 figures, meaning that the global semiconductor market is expected to grow by about 11.2% on top of the already exceptionally strong recovery trend expected in 2024, reaching approximately 697 billion USD.
WSTS predicts that the growth in the semiconductor market size in 2025 will be primarily driven by the strong demand for enterprise storage chips and AI logic chips propelled by robust AI training/inference computing power demand. The overall market size of the logic chip category, which includes CPU, GPU, and ASIC chips, is expected to grow by about 17% year-on-year, while the market size of the storage chip category covering HBM, enterprise SSD, and NAND is expected to grow by more than 13% year-on-year, building on a substantial growth of 81% in 2023.
At the same time, WSTS also expects that the growth rates of discrete devices, optoelectronics, Sensors, MCUs, and analog chips, as well as all other segmented chip markets, will reach single-digit increases.

Goldman Sachs commented on TSMC's earnings: the growth driven by AI Chips is extremely strong, and the future is promising.
Headquartered in Taiwan, China, TSMC announced its earnings for the fourth quarter of 2024 last Thursday, which exceeded Wall Street Analyst consensus expectations.
Goldman Sachs stated that, by application field, TSMC's high-performance computing (HPC) business covering AI Chips and server CPUs has again strongly stood out, with the year-on-year revenue growth rate of TSMC's HPC business accelerating further from 57% in the second quarter of 2024 and 65% in the third quarter to an unexpected growth of 69%.

Looking ahead, TSMC's management expects: a) Overall revenue for the full year 2025 will grow by about 25%, of which AI-related revenue is expected to double year-on-year; b) Capital expenditures for 2025 are expected to be about $38 billion to $42 billion (with a median calculation showing a year-on-year increase of 34%), which aligns with Goldman Sachs's expectations but is higher than Wall Street's general expectations; c) Shared a target of a compound annual revenue growth rate of about 20% over the next five years (i.e., 2024-29), with AI-related revenue expected to grow by about 45%.
Goldman Sachs's semiconductor analysis team believes that TSMC's latest performance, outlook, and management comments are very important signals of optimistic growth for companies in the "AI infrastructure expansion and new construction fields" covered by Goldman Sachs (such as NVIDIA, Broadcom, and Marvell Technology), as well as semiconductor manufacturing equipment, testing equipment, and material suppliers (i.e., Applied Materials, Lam Research, and$KLA Corp (KLAC.US)$etc.) are very optimistic positive growth signals.
Goldman Sachs' analysis team highlights the overall situation of the semiconductor industry in their research report by combining Taiwan Semiconductor's earnings outlook: After a year where chip foundry revenue in 2.0 grew 6% year-on-year (below Taiwan Semiconductor's previous expectations, due to an unfavorable macro environment), the company expects revenue in the chip manufacturing industry to grow 10% year-on-year by 2025. This forecast is based on the perspective that the fabless semiconductor industry will end 2024 with normal inventory levels. The latest revenue growth acceleration forecasted by Taiwan Semiconductor's management aligns with Goldman Sachs' highest-level expected growth from trendline analysis of the industry.

Goldman Sachs is bullish on chip leaders in the high-performance computing (HPC) and semiconductor manufacturing equipment (WFE) fields.
Currently, the demand for AI Chips is incredibly strong and is likely to remain so for a long time. According to the latest data released by the Semiconductor Industry Association (SIA), driven by strong demand for AI Chips, global semiconductor market sales in November 2024 are expected to reach approximately $57.8 billion, a year-on-year increase of 20.7% from $47.9 billion in November 2023, and a month-on-month increase of 1.6% compared to the $56.9 billion recorded in October 2024.
John Neuffer, President and CEO of SIA, stated in a press release: "The global semiconductor market size continues to grow significantly in November, setting the highest monthly sales total in history, with monthly sales increasing for eight consecutive months. Year-on-year sales have increased by over 20% for four consecutive months, with the Americas region experiencing a 54.9% year-on-year increase."
$Advanced Micro Devices (AMD.US)$ CEO Su Zifeng recently stated at a product launch event that the demand for data center AI Chips, including AI GPUs, far exceeds expectations, and it is predicted that by 2027, the data center AI Chip market will reach $400 billion, further increasing to $500 billion in 2028. This implies that from the end of 2023 to 2028, the global data center AI Chip market is expected to have a compound annual growth rate exceeding 60%.
Taiwan Semiconductor's high-performance computing (HPC) revenue achieved a quarter-on-quarter baseline growth of 19%, with its year-on-year growth rate accelerating from 57%/65% in the previous two quarters to 69% in the fourth quarter of 2024.
Although Goldman Sachs stated that the recent performance issues related to heat generation and chip connectivity of NVIDIA's latest Blackwell architecture AI server systems brought uncertainty on the supply side, they believe that Taiwan Semiconductor's latest comments on the demand for AI Chips (noting that the AI Chips produced by Taiwan Semiconductor include commercial AI GPUs, AI ASICs, and HBM storage systems used for AI training and inference) are a good sign for companies driving infrastructure development in the AI field.
Specifically, Taiwan Semiconductor's management pointed out that it is expected that revenue related to AI will double by 2025 (having already tripled in 2024) and will grow at a compound annual growth rate of about 45% over five years by 2029.
Goldman Sachs stated that Taiwan Semiconductor's outlook for capital expenditure scale being higher than expectations is bullish for Semiconductor manufacturing equipment, testing equipment, and semiconductor material suppliers. Taiwan Semiconductor expects its capital expenditure range for 2025 to be approximately $38 billion to $-42 billion (a year-on-year growth of 34% based on the median), which is essentially in line with Goldman Sachs' expectations but higher than the general expectations of investment institutions.
As Taiwan Semiconductor, Samsung Electronics, and Intel expand their production capacity for AI Chips based on advanced processes of 7nm and below, and as Taiwan Semiconductor accelerates the construction of large chip manufacturing plants in the USA, Japan, and Germany starting in 2025, it is expected that Taiwan Semiconductor will engage in a large-scale purchase of state-of-the-art Lithography machines, advanced packaging equipment, etching equipment, as well as thin-film deposition, chip monitoring and measuring equipment, and other high-end Semiconductor equipment and some core raw materials in the coming years. These Semiconductor equipment suppliers mainly include:$ASML Holding (ASML.US)$、$Applied Materials (AMAT.US)$、 $KLA Corp (KLAC.US)$ Tokyo Electron, Shin-Etsu Chemical, and BE Semiconductor are among the top equipment providers in the chip industry chain.
Goldman Sachs pointed out in its research report that TSMC plans to allocate about 70% of its capital expenditures to advanced chip manufacturing processes (generally defined as 7nm and below), 10-20% to specialty chip nodes, and 10-20% to advanced packaging, testing, mask manufacturing, and other projects. Notably, compared to the capital expenditure provided by management in their Q3 2024 earnings call, the allocation for advanced chip manufacturing processes has slightly decreased (from 70-80% to about 70%), while the distribution for advanced packaging, testing, mask manufacturing, and other projects has slightly increased (from about 10% to 10-20%).
Given TSMC's stable capital expenditure guidance, Goldman Sachs' analysis team expects that investor expectations for the overall advanced chip foundry/GPU and ASIC logic chip industry will improve, as this is related to spending on semiconductor manufacturing equipment (WFE) in 2025, even as Intel and Samsung (LSI/foundry) may experience or potentially experience year-on-year declines. Overall, Goldman Sachs believes that TSMC's optimistic outlook for its chip foundry business, combined with higher-than-expected capital expenditure guidance for 2025, is a positive sign for key WFE suppliers including Applied Materials, Lam Research, and KLA Corp.
At TSMC's chip factory, Applied Materials is omnipresent. Unlike ASML, which focuses exclusively on lithography, the high-end equipment provided by Applied Materials, headquartered in the USA, plays a crucial role in almost every step of chip manufacturing. Its products cover important chip-making processes, such as atomic layer deposition (ALD), chemical vapor deposition (CVD), physical vapor deposition (PVD), rapid thermal processing (RTP), chemical mechanical polishing (CMP), wafer etching, and ion implantation. Applied Materials has high-precision manufacturing equipment and customized solutions in the wafer Hybrid Bonding and Through Silicon Via chiplet advanced packaging processes, which are essential for 2.5D and 3D advanced packaging steps.
Another leader in the global semiconductor equipment market, KLA Corp, focuses on chip yield monitoring systems. Its breakthroughs in broadband plasma optical inspection technology and the latest chip defect fine inspection systems provide semiconductor manufacturers with increasingly powerful tools to enhance production efficiency and product quality. Its advanced technology and equipment hold an important position in the industry and are widely used in various semiconductor manufacturing processes.
Goldman Sachs also believes that TSMC's expected revenue growth in 2025 (about a 25% year-on-year increase) and management comments suggesting a slight rebound in utilization in 2025 have positive implications for$Entegris (ENTG.US)$(Goldman Sachs assigned a 'Buy' rating) this semiconductor materials company, where approximately 75% of its revenue is derived from consumable sales impacted by the semiconductor industry's wafer startups (note that TSMC accounts for about 11% of Entegris' total revenue in 2023).
Entegris is an important supplier in the Semiconductors Industry, primarily focused on providing high-purity materials, Chemicals, gas handling and filtration systems for chip factories, and other critical technologies and raw materials products. These products assist chip manufacturers like Taiwan Semiconductor in producing chips in high-precision, ultra-clean production environments, thereby improving production efficiency and reducing defect rates. Entegris's high-purity Chemicals and raw materials for chip manufacturing occupy a critical position in the global Industry Chain, particularly in the production processes of advanced chip manufacturing (such as 7nm, 5nm processes) and next-generation chips (2nm and below).

Goldman Sachs is particularly focused on Taiwan Semiconductor's constructive comments regarding the capacity construction for N2 (i.e., 2nm) chip manufacturing (specifically, Taiwan Semiconductor expects the number of N2 chip wafers to exceed N3 and N5 in the next two years, mainly driven by Smart Phone and HPC applications). Considering the potential for increased wafer capacity, Goldman Sachs stated that this is undoubtedly very positive for Entegris’s performance outlook. However, Goldman Sachs does acknowledge that the wafers start environment across the entire Semiconductors industry remains challenging, with many NAND chip suppliers cutting production in real-time, and there is still an oversupply of chips in areas such as Autos and Industrial, as well as a certain degree of suppression on the production scale of backend chip manufacturing nodes.
Editor/Rocky