Taiwan Semiconductor Manufacturing Co. projected quarterly revenue ahead of analysts estimates, reflecting expectations for an improved chip market outlook despite China’s uneven economic recovery.

The primary chipmaker to Nvidia Corp. and Apple Inc. expects to spend $32 billion on growing and upgrading capacity in 2023, the lower end of a previously projected range. Still, that figure surpassed the $30.5 billion in capital spending analysts had expected. Executives on Thursday told investors they were seeing signs that demand was stabilizing and close to bottoming after more than a year of post-Covid malaise.

TSMC is counting on a sustained boom in chipmaking to train AI services sparked by the advent of ChatGPT. Companies from the US to China are rushing to build artificial intelligence tools, which require the sort of high-end chips that the Taiwanese company dominates. It posted better-than-expected net income in the third quarter of NT$211 billion ($6.5 billion).

“We see early signs of demand stabilization in the PC and smartphone markets. Those two are the biggest segments for TSMC’s business,” Chief Executive Officer C. C. Wei told analysts on a conference call. “We want to say that 2024 will have very healthy growth,” Wei added, though he emphasized it was too early to call a strong rebound.

For now, demand for semiconductors overall remains uncertain following a Covid-era boom in internet activity that fueled a surge in datacenter construction. China, the world’s biggest market for smartphones and chips, is struggling to revive growth even as the US government tightens restrictions on the Asian nation’s tech sector.

Washington’s constraints could reduce manufacturing orders to TSMC from US chip designers such as Nvidia for certain AI chips in the medium to long term, according to Bloomberg Intelligence analyst Charles Shum.

A day before TSMC’s report, Dutch chip gear supplier ASML Holding NV reported a big drop in order bookings for the September quarter. TSMC is one of ASML’s biggest customers and its slower spending was reflected in ASML’s results, portending a potential cut in capital expenditure by the Taiwanese firm.

The company also makes iPhone chips, and demand for consumer gadgets has been affected by the downturn. Still, fellow supply chain bellwether Murata Manufacturing Co. said this week the smartphone market has bottomed out and will resume growth this year.

Longer term, TSMC is spending heavily on chip plants around the world. Executives said its $40 billion Arizona site was on track to start production in 2025’s first half, while a Japanese plant is slated to begin mass output in late 2024.

--With assistance from Vlad Savov, Debby Wu, Gao Yuan and Betty Hou.