Strong ASML, TSMC forecasts signal AI spending boom is intact

(Reuters) - Strong forecasts from ASML and TSMC this week point to another quarter of hefty spending by American cloud-computing giants as they race to secure advanced chips needed for their artificial intelligence build-outs.

"AI (demand) is so strong ... Our customers, and customers of customers - who are mainly the cloud service providers - continue to provide us with their very strong signal and positive outlook," TSMC CEO C.C. Wei said on an analyst call.

The company raised its annual revenue forecast on Thursday and said it was stepping up capital spending this year to meet AI chip demand.

ASML, the world's largest supplier of chip-making tools, also lifted its annual revenue forecast on Wednesday.

"ASML's positive numbers generally paint a favorable picture for the semiconductor industry, even amid AI bubble concerns," said Giuseppe Sette, co-founder and president of investment analysis platform Reflexivity.

While overall AI chip appetite remains ⁠strong, demand is increasingly moving towards advanced processors required to make large language models operate or apply their training to answer questions, also known as inference.

CAPACITY CONSTRAINTS LIMIT GROWTH POTENTIAL

With demand for AI chips and equipment skyrocketing, the industry's heavy reliance on a handful of suppliers means chipmakers can only meet orders if they secure sufficient manufacturing capacity ⁠at those firms.

As a result, companies have taken to signing long-term agreements to secure capacity commitments for multiple years.

ASML CEO Christophe Fouquet said demand is set to outstrip supply for the foreseeable future, creating constraints across markets ranging from ⁠AI to smartphones and personal computers.

TSMC executives on Thursday also pointed to tight production capacity, with the company working aggressively to expand manufacturing capabilities in order to produce AI chips in mass quantities.

"Capacity is ⁠very tight, but we are working hard to make sure that we can meet customers' demand ... we are stepping up our capex investment to increase our capacity," Wei said.