By Tae Kim
The DeepSeek moment will benefit Taiwan Semiconductor Manufacturing's business prospects, according to J.P. Morgan.
On Tuesday, analyst Gokul Hariharan reiterated his Overweight rating on TSMC stock, citing the growing excitement about Chinese start-up DeepSeek's recent artificial intelligence model releases.
"Faster model evolution should be positive for overall AI compute demand, " the analyst wrote. "In our view, [DeepSeek model] R1 unlocks another vector of scaling (reasoning or Chain-of-Thought), which could drive very rapid advances" over the next 12 to 18 months.
Reasoning is a newer technique where an AI model reflects on potential answers more thoroughly by going through many thought computations before reaching a higher quality answer.
In early Tuesday trading, TSMC American depositary receipts rose by 2% to $203.88.
In the wake of DeepSeek's new models released in late December and January, there have been questions about the computing capacity needed for AI inference -- the process of generating results from AI models.
The analyst downplayed worries that DeepSeek's model efficiency will crimp demand for AI. In fact, he believes the opposite is true, and that the advances will drive more data-center AI computing capacity going forward.
"We do not believe that frontier model creators are likely to slow down their AI capex spend," he wrote.
Last month, TSMC reported a 57% rise in net profit for its December quarter, driven by strong demand for AI chips. TSMC is the main manufacturer of AI chips for Nvidia. It also makes the main processors inside Apple iPhones, Qualcomm mobile chipsets, and processors made by Advanced Micro Devices.
TSMC saw "robust AI-related demand from our customers," Chairman and Chief Executive C.C. Wei said on a call after the company's earnings report. Wei said revenue from AI-related chips will double in 2025, citing "strong surging" demand.
Write to Tae Kim at tae.kim@barrons.com
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February 04, 2025 13:08 ET (18:08 GMT)
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