TSMC Foresees Gains In Stock Market

Taiwan Semiconductor Manufacturing Co. may see further gains in the stock due to its impending results, as the company is currently trading at modest valuations despite reaching a record high.

TakeAway Points:

  • According to some market observers, TSMC may increase its annual revenue and capital expenditure estimates in response to better-than-expected sales in the most recent quarter.
  • The market value of TSMC, the biggest stock in Asia, has increased by $340 billion.
  • Taiwanese chipmaker will release its complete first-quarter results on Thursday, revealing the sales contributions of its various divisions and the sustainability of its profitability despite its investments in international expansion.

TSMC Stock Gains

TSMC, the largest chip foundry in the world, may increase its annual revenue and capital expenditure estimates in response to better-than-expected sales in the most recent quarter, according to some market observers. This would offer proof that artificial intelligence-driven rapid growth will continue.

Regarded as a major benefactor of the AI revolution, TSMC is the primary manufacturer of chips built by Nvidia Corp. and other companies. Even if the future of smartphones and other consumer goods is still uncertain, one encouraging development is the industry’s ongoing progress in creating ever-tinier circuitry.

“The top thing to watch is the capex expectations, given that tends to be an indication of the demand they are seeing,” said Xin-Yao Ng, director of investment at abrdn. “We still think TSMC is worth buying because the share price gains are backed by fundamentals, where their dominance and technological leadership in the most advanced chip nodes leave them very well placed to compound earnings at high rates for longer.”

The market value of TSMC, the biggest stock in Asia, has increased by $340 billion after its shares more than quadrupled from a low in October 2022. At less than 17 times projected earnings for the upcoming year, it is currently trading rather close to its five-year median valuation. This is in contrast to the 15-year high of more than 28 times for the Philadelphia Semiconductor Index.

On Thursday, the Taiwanese chipmaker will release its complete first-quarter results, revealing the sales contributions of its various divisions and the sustainability of its profitability despite its investments in international expansion. The gross profit margin for TSMC is expected to have remained at 53% from the previous quarter, according to analysts.

Geopolitical Dangers

TSMC anticipates revenue growth of at least 20% and is now anticipating $28 billion to $32 billion in capital expenditures for the entire year, reversing a modest drop in 2023. Analyst estimates are in agreement for $29 billion.

The Taipei-listed chipmaker’s shares increased by up to 2.5% on Wednesday in anticipation of the earnings announcement.

In an effort to meet demand worldwide and broaden its geographic reach amidst tensions between China and the West, the corporation is currently working on plans to construct operations in the US, Japan, and Germany.

“TSMC is undervalued as the firm’s dominant position in cutting-edge chips is sometimes overshadowed by geopolitical risks,” said Phelix Lee, an analyst at Morningstar Inc. 

These concerns were “partially addressed” by recent news that TSMC is receiving $11.6 billion in grants and loans for factories in Arizona under the US Chips Act, Lee added.

According to Blomberg-compiled data based on open interest, the put-to-call ratio on TSMC’s shares has decreased from a high reached in March, indicating that there has been more trade in bullish than in negative options contracts. 34 analysts on the sell side have given the company a buy rating, one hold, and no sells.

“We expect demand and sales growth to be higher for longer than what is currently priced into the stock,” said Peter Garnry, head of equity strategy at Saxo Bank. “A negative of course is the growing need to derisk its manufacturing base out of Taiwan as it increases its capex needs, lowering free cash flows. However, these new chips manufacturing sites outside Taiwan are needed to keep servicing the high demand.”