Ep 184: Earnings TSMC/ASML/AEHR, State of AI Semis

**Ben Bajarin** (0:05)
Hello, everyone, welcome to another episode of The Circuit. I am Ben Beharon.

**Jay Goldberg** (0:10)
Greetings, agents, I'm Jay Goldberg.

**Ben Bajarin** (0:12)
All right, so we had a good week of earnings, a lot of interesting stuff happened this week, more so than we're gonna get to in our allotted time. But, you know, we do like the names of companies that we track this week, so things like TSMC, ASML, and Air, who largely are kind of just again, giving us a lens and a view of what's happening in manufacturing and foundry and wafer equipment materials, lots of good stuff to unpack on that. So we're gonna start with TSMC, you know, who we've typically constantly said, like was a bellwether indicator of the space.
I'll let you start the numbers and then let's unpack some of the commentary and the demand signals that they're seeing.

**Jay Goldberg** (1:01)
Sure, so TSMC reported Q2 revenue ahead of expectations, EPS ahead of expectations, and they guided revenue up for next quarter as well, not by a ton, but by, well, certainly above sell-side consensus, probably not so high above buy-side expectations, but above, and then margins sounded very good. So strong numbers across the board, and probably most significant, they also raised their CAPEX forecast, which, yeah, I'm not sure everybody else were going to talk about.

**Ben Bajarin** (1:36)
And I think it, I mean, I don't know what your read was. Most people assumed they were going to raise. I don't know if they knew how much they were going to raise. I was seeing people assume in the 60s, which is what they raised it to, but I don't know if everybody was like for sure, you know, we're tagging north of 60 billion as that number.
But this is interesting to me because... So the other thing they said was 70 to 80% that's going to be allocated to advanced process, obviously part of that packaging. They have to continue to increase co-host wafers because advanced packaging is going to come hand in hand. But the observation I think is interesting, and this is where people look at this and they go, okay, right, when you are a company that has to increase capex this way in order to build more, you know, in this clean room space for your investments. What makes it interesting to me is that this is a company who used to be, right, that are growth, their entire upside was on smartphones.
And smartphones, to be honest with you, because they are little tiny chips, pack a lot of chips per wafer, just doesn't necessitate, like what you could envision is four to five additional foundries needed for TSMC to meet demand because the size of these chips, plus the wafers you need for packaging. Like, I say all that to say, it's just interesting, the implications on clean room space and equipment when you move from monolithic tiny chips in a smartphone era to what we are now in the HPC era is a drastically different understanding and shape of foundry. That's the point I wanted to make.

**Jay Goldberg** (3:31)
I think of it more abstractly in the sense that Moore's Law is running out. I won't say dead, let's say Moore's Law is running out.

**Ben Bajarin** (3:41)
Come on, Jay, you could just say it.

**Jay Goldberg** (3:43)
Moore's Law is running out.
And so we're having, and so everything is becoming, everything is having to become more complex. We're having to do more to eke out gains in compute. And I think that's gonna be true for smartphone chips as well. If we wanna keep improving those, we're gonna have to do similar things. I mean, we haven't quite seen that take place yet in smartphones, but we certainly are seeing it in PCs, right? We're doing both Intel and AMD are doing a lot more to get PC chips, CPUs up and running. And I think we'll see that in smartphones too, probably in a generation or two, because we're now at the point where leading edge is probably too expensive for most most chips, most phones, except for maybe Apple. So I think we're seeing it first in AI and high-performance compute HPC. But it'll come for everybody else too. Cost per bit is going up. We're getting more performance, but cost per bit is going up.
That's really the end of Moore's Law.

**Ben Bajarin** (4:54)
Yeah, yes. And again, I say, so I throw in again the advanced packaging part, just again to show how much more equipment and space it needs when it's not just small monolithic dyes. That's my point.
I think a reframing of what goes on in foundry, and yes, advanced process nodes, all of these things, plus I don't know if I had said this before, but when I toured Intel's Fab 52, we walked through parts of the foundry that was doing 10 and 3 nanometer.