In January, Taiwan Semiconductor Manufacturing Company (TSMC) faced a notable decline in revenue growth compared to the previous quarterThis dip in performance can primarily be attributed to the overall industry struggles surrounding artificial intelligence (AI) spending, presenting a complex landscape for the semiconductor sector.

Recent statistics revealed that TSMC's January revenue increased by 35.9% year-on-yearHowever, this figure is a noticeable drop from the 38.8% growth recorded in the fourth quarter of the previous yearWhile analysts are projecting a more optimistic outlook for TSMC's first-quarter revenue—forecasting a growth of 41%—the unique circumstances surrounding the Lunar New Year complicate the interpretation of TSMC's sales figures during the first two months of the yearFactory production activities often experience adjustments during this holiday period, and supply chains tend to be affected accordingly, making it challenging to precisely determine the reasons behind revenue fluctuations.

Simultaneously, the market is currently abuzz with the launch of DeepSeek, which unveiled a “low-cost + high-performance” open-source model stirring up discussions among investorsConcerns have arisen regarding a potential decline in demand for AI chips from companies like NVIDIA, as DeepSeek's cost-effective and high-performance solutions might lead businesses to reconsider their computational power choicesChanges in AI chip demand could have a cascading effect on TSMC and ASML, pivotal players within the chip manufacturing supply chainTSMC plays a critical role in producing chips for various design firms, while ASML leads the market in photolithography equipment crucial for semiconductor production

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A downturn in AI chip demand could result in reduced orders for TSMC and diminished sales for ASML’s equipment.

Despite the notable success of DeepSeek, American tech giants remain steadfast in their commitment to channeling vast financial resources into the AI sectorMajor players such as Alphabet, Amazon, Meta Platforms, and Microsoft have already invested billions in AI initiatives throughout the previous quarter and boast plans for increased investments by 2025. Notably, Alphabet has earmarked approximately $75 billion for its 2025 investments, signaling its intentions for comprehensive engagement and deepened research within the AI domainAmazon’s anticipated capital expenditure could reach around $100 billion in 2025, a formidable allocation designed to underpin advancements in various sectors, including cloud computing and AI applications.

Last week, Meta indicated that its expected capital spending for 2025 would range between $60 billion and $65 billion, surpassing prior projections of $52 billionCFO Susan Li elaborated that the surge in capital expenditure would primarily be driven by investments supporting its generative AI initiatives and core business growthThis underscores Meta's strategy not merely to foster AI technology but to integrate it with its core operations to enhance user experience and market competitiveness through technological innovationConcurrently, Microsoft announced its plan to allocate around $80 billion during the 2025 fiscal year toward data center investments, which serve as a critical foundation for AI operations, further bolstering its computational capabilities and service levels in the AI space.

While the emergence of DeepSeek has stoked fears in the market, the prevailing sentiment of optimism regarding future AI expenditure remains robust

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Even before DeepSeek became the talk of the tech community, TSMC had reported in mid-January its expectations for a record annual capital expenditure reaching $42 billion for 2025. This declaration demonstrates TSMC's unwavering confidence in the long-term growth of the AI marketDespite experiencing a short-term slowdown in revenue growth, TSMC is persistently committed to increasing investment in technology and production capacityFollowing DeepSeek's surge in popularity and the subsequent market concerns affecting semiconductor equipment giant ASML, the latter reported better-than-expected performance for the fourth quarter of 2024 at the end of January.

ASML's CEO Christophe Fouquet voiced a positive outlook regarding DeepSeek's arrival, predicting that this development could propel semiconductor demand rather than diminish itHe stated, “The reduction in AI costs may point toward an expanded range of applicationsGreater application diversity implies increasing demand over timeWe view this as an opportunity for chip demand growth.” In the long term, as AI technology continues to proliferate, a broader swath of industries and enterprises is expected to adopt AI, inevitably driving demand for chips, whether for training AI models with high-performance chips or various chips needed for end-user devices.

The slowdown in TSMC’s revenue growth in January serves as a microcosm of the semiconductor industry grappling with the AI waveAlthough DeepSeek's entrance introduces a measure of uncertainty, the sustained investments from American tech giants coupled with optimistic market sentiments regarding the growth of AI indicate that the AI industry remains on the riseMoving forward, as technological advancements and applications expand, the semiconductor sector is poised to encounter new developmental prospects invigorated by AI, with players like TSMC and ASML continuously adapting and adjusting to discover new growth drivers.