Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE:TSM) could prove more resilient than other Asia-Pacific technology hardware companies if the artificial intelligence spending boom cools, according to a new stress test from S&P Global Ratings.
S&P expects annual AI spending by hyperscalers to reach $1.5 trillion globally by 2028. The surge should continue to support Asia’s technology hardware sector. However, the ratings agency warned that lower capital spending would affect different parts of the AI supply chain unevenly.
Foundries Have A Bigger Buffer
S&P said advanced foundries should hold up best in an AI downturn, particularly Taiwan Semiconductor. Its technology leadership, advanced manufacturing nodes and diversified end markets could help protect pricing and margins.
Even if AI demand falls well below S&P’s base case, Taiwan Semiconductor Manufacturing’s profitability and cash generation should remain above 2026 levels. The company could also cut capital spending in 2027 and 2028 if demand weakens.
Memory Makers Face Greater Risk
Memory manufacturers face more downside because weaker high-bandwidth memory demand could free up capacity for conventional DRAM. That could push memory prices lower. Conventional memory accounts for about 70% of profits at large memory makers, S&P said.
Still, S&P expects strong underlying memory demand as AI use cases expand. Longer-term supply agreements and increasingly customized HBM and data-center storage products could also provide some protection.
SK hynix Inc. (NASDAQ:SKHY) has reduced some volatility through long-term agreements and customized products. However, a severe downturn could erode its ratings buffer. Meanwhile, NAND-focused Kioxia Holdings Corp. could be more sensitive because of its concentrated exposure.
S&P said a temporary slowdown in hyperscaler spending would likely have only a moderate effect on Asia-Pacific technology issuers. A lasting shift in AI demand would pose a much bigger credit risk.
TSM Price Action: Taiwan Semiconductor shares were down 0.23% at $429.25 during premarket trading on Friday, according to Benzinga Pro data.
Photo via Shutterstock
Login to comment