By Ben Blanchard and Faith Hung

TAIPEI (Reuters) -TSMC, the dominant maker of chips used in artificial intelligence (AI) applications, is expected to report another strong quarterly earnings on Thursday but its Taipei shares slid 4%, pressured by comments from Donald Trump on Taiwan.

While TSMC’s stock – and the broader Taiwan market – has reached record highs, it began slumping on Wednesday after Trump, the Republican U.S. presidential candidate, said Taiwan “did take about 100% of our chip business” and should pay the U.S. for its defence.

TSMC’s American Depository Receipts slid 8% on Wednesday, though it is expected to report a 30% leap in second- quarter profit later on Thursday. The broader Taiwan market was down 2% early on Thursday.

“Trump’s comments may have a political impact but will not alter the market fundamentals,” said James Huang, chairman of Taipei-based Franklin Templeton SinoAm Securities Investment Management.

“Major companies are still very optimistic about AI and investing heavily in AI. We don’t see Trump’s remarks changing that,” Huang added.

Taiwan Semiconductor Manufacturing Co (TSMC), the world’s largest contract chipmaker, whose customers include Apple and Nvidia, has benefited from a surge towards adoption of AI.

TSMC is set to report a net profit of T$238.8 billion ($7.33 billion) for the quarter ended June 30, according to an LSEG SmartEstimate drawn from 21 analysts. SmartEstimates give greater weighting to forecasts from analysts who are more consistently accurate.

That estimate compares with the 2023 second-quarter net profit of T$181.8 billion.

TSMC reported last week a jump in Taiwan-dollar denominated second-quarter revenue, comfortably beating market expectations. It will give third-quarter revenue guidance in U.S. dollars.

On Wednesday, shares in ASML, the biggest supplier of computer chip- making equipment for whom TSMC is a major customer, fell sharply on worries that pressure from the U.S. government could lead to tighter restrictions on its exports to China.

The investor concerns overshadowed second-quarter earnings at Europe’s largest technology company that beat forecasts.

PEAK SEASON

TSMC, during its quarterly earnings call starting at 0600 GMT on Thursday, will update its outlook for the current quarter as well as for the full year, including its capital expenditure, as it races to expand production.

TSMC is spending billions of dollars building new factories overseas, including $65 billion on three plants in the U.S. state of Arizona, though it has said most manufacturing will remain in Taiwan.

On its last earnings call in April, TSMC maintained its guidance for capital spending this year at $28 billion to $32 billion, compared with last year’s $30.45 billion, and said 70% to 80% of the total would go towards advanced technologies.

The second half of the year is traditionally the peak season for Taiwanese tech companies as they race to supply customers ahead of the year-end holiday season in major Western markets.

The AI boom has helped drive up the price of shares in Asia’s most valuable publicly listed company, with TSMC’s Taipei-listed stock leaping 68% so far this year compared with a 30% gain for the broader market.

TSMC, colloquially referred to in Taiwan as the “sacred mountain protecting the country” for its critical role in Taiwan’s export-dependent economy, faces little competition, though both Intel and Samsung are trying to challenge its dominance.

($1 = 32.5700 Taiwan dollars)

(Reporting by Ben Blanchard and Faith Hung; Editing by Christopher Cushing and Muralikumar Anantharaman)

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