By Sherry Qin and Fabiana Negrin Ochoa
Taiwan Semiconductor Manufacturing Co.'s sales slowed to the softest pace in over one and a half years for October. However, with growth still in the double digits and the Taiwanese chip maker guiding for more ahead, analysts see little cause for concern.
Sales at the world's largest chip contract maker--seen as a bellwether of industry trends--rose 17% last month from a year earlier, TSMC said Monday.
While that is the slowest rate of expansion since February 2024, analysts say it would be premature to take that as a sign that demand for artificial intelligence, which has been a boon for the Taiwanese semiconductor giant, is starting to ebb.
"One month of data isn't enough to say AI demand is cooling," Morningstar analyst Phelix Lee said.
Seasonality was likely a contributor to TSMC's sales weakness, said Daiwa analyst Rick Hsu.
As companies pour billions into AI, some corners of the market have been growing nervous about the risk of a bubble. Fears about high valuations and overspending on AI buildout sparked stock-market selloffs last week, but many think the jitters are overdone.
"While the bears will continue to yell 'AI bubble' from their hibernation caves we continue to point to this tech cap-ex supercycle that is driving this 4th industrial revolution into the next few years," Wedbush Securities analysts led by Dan Ives wrote in a note.
There are some similarities between the dot-com bubble and what's happening now with AI, in terms of the huge amount of capital expenditure and big gains in stock prices, said Jacky Tang at Deutsche Bank.
But valuations back then were way higher than they are now, with no earnings support, he said. "If we look at the third-quarter earnings released the past two weeks, they are actually pretty resilient."
How capex is being funded is also telling: In the past it was more about lending, with companies borrowing from banks or fundraising, said Tang, Deutsche Bank's chief investment officer and head of discretionary portfolio management for emerging markets. Now, a lot of companies are using free cash flow instead.
"If we look at capex over free cash flow over the past few years, it's pretty stable, meaning that even if you have higher capex you have the free cash flow to support that. That is a very different story than in the past," Tang said.
Last month, TSMC again raised its full-year revenue outlook as profit for the third quarter soared to a record high. The Taipei-listed company's chairman, C.C. Wei, said production capacity remains tight and the company is working hard to meet demand.
If AI keeps booming, so too will TSMC.
When Nvidia's chief executive, Jensen Huang, met with Wei at an event in Taiwan last week, he called TSMC the key to the U.S. AI chip giant's success.
"Without TSMC, there would be no Nvidia today," Huang said.
Write to Sherry Qin at sherry.qin@wsj.co
(END) Dow Jones Newswires
November 10, 2025 04:28 ET (09:28 GMT)
Copyright (c) 2025 Dow Jones & Company, Inc.
