Apple’s new artificial intelligence (AI) features, known as Apple Intelligence, have taken the tech world by storm. Unveiled at the recent Worldwide Developers Conference, these features include advanced text generation and summarization, AI-assisted photo editing, and an upgraded Siri. But what sets Apple Intelligence apart is its on-device AI processing, which eliminates the need for data to be sent to a server for processing. This could have a significant impact on one of Apple’s major suppliers, Taiwan Semiconductor Manufacturing Co. (TSMC), and potentially push the company’s valuation to the coveted $1 trillion mark.
By processing AI queries on the device itself, Apple is leading the way in edge AI. However, older devices may struggle to handle these advanced features, meaning users may be prompted to upgrade to newer models. This surge in iPhone sales would lead to an increased demand for TSMC’s chips, as Apple-designed silicon powers Apple Intelligence. But TSMC’s influence extends beyond Apple, as it manufactures the majority of chips in the world, occupying over 60% of the market. This dominant position allows TSMC to invest heavily in research and development, paving the way for more powerful and energy-efficient chips. In turn, this attracts both new and existing customers, bolstering TSMC’s growth.
Apple’s foray into AI also relies on its Private Cloud Compute (PCC) system. Unlike traditional cloud-based AI models, Apple’s PCC processes data and algorithms on its own servers, providing the necessary compute power for advanced AI tasks. This system has the potential to generate significant income for Apple as it collaborates with more businesses and developers seeking to integrate their AI services with Apple’s platform. As Apple expands its partnerships, the demand for TSMC’s services could grow further.
Looking ahead, Apple has a vast runway for growth in AI features through third-party integrations, much like its success with the App Store over the past 15 years. This growth trajectory could benefit not only Apple but also TSMC. Given the continued demand for AI chips, TSMC’s market cap, currently around $900 billion, is poised to reach the $1 trillion mark. Analysts predict a 25% increase in earnings next year, indicating strong potential for growth.
Investors eyeing TSMC should consider its undervalued shares, trading at approximately 27 times forward earnings estimates. The company’s competitive advantage in producing advanced and efficient chips, coupled with factors like a strong iPhone upgrade cycle and the shift towards edge computing, positions TSMC for continued success.
In conclusion, Apple’s introduction of Apple Intelligence and on-device AI processing could have far-reaching implications for TSMC and the semiconductor industry as a whole. With the potential for increased chip demand, TSMC’s market value is poised to surpass the $1 trillion mark. This, coupled with its dominance in chip manufacturing, positions TSMC as a major player in the ever-growing AI landscape.
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