TSMC's Strong Performance and Future Prospects Amid Global Challenges

TSMC Stock Is A Stellar Bargain, Buy The Fear (NYSE:TSM)

Investors have a unique buying opportunity in chip stocks. TSMC has the lowest forward P/E ratio in the industry group. Chip companies have seen massive selling pressure in the last several days with names like Nvidia (NVDA), AMD (AMD), Broadcom (AVGO) and Taiwan Semiconductor Manufacturing (NYSE:TSM). However, TSMC reported strong financial results for its last quarter on Thursday which were overshadowed by the ensuing sell-off in the chip sector. TSMC benefited from ramping AI demand, with its revenues soaring 32.8% Y/Y and the company reporting gross margins that came in ahead of guidance. Given the recent sell-off in chip stocks, I believe investors have a unique opportunity to be greedy here and scoop up shares in a company that benefits immensely from the AI-driven spending boom in the semiconductor industry! I rated TSMC a strong buy in June -- 3 Reasons To Buy This Semiconductor Play -- as the chip manufacturer obviously was set for a strong earnings release for the second fiscal quarter. While TSMC beat estimates and reported near-33% year over year top line growth amid chip companies splurging on manufacturing capacity, Taiwan Semiconductor Manufacturing's strong Q2 did not get the recognition it deserved. I believe the drop is a unique buying opportunity for investors that want to capitalize on irrational fear in the market. Taiwan Semiconductor Manufacturing continued to benefit enormously from AI in Q2'24 and the chip manufacturer easily sailed past Wall Street's average predictions: TSMC earned $1.48 in adjusted profits in the second-quarter, beating the consensus estimate by $0.06 per-share. The top line also came in ahead of the average estimate: TSMC reported revenue of $20.8B, which was $730M better than expected. Chip stocks started to sell off this week after former president Trump made comments about Taiwan and said that the Asian country should pay for its own defense. The comments triggered a sell-off in the chip market, with companies like Nvidia, AMD and TSMC slumping hard. Unfortunately, this noise overshadowed TSMC's strong second-quarter earnings release, which was defined by a continual spending boom related to AI chips. In the second fiscal quarter, TSMC generated net revenue of $20.8B, showing year-over-year growth of 32.8%. Besides robust top-line growth, what stood out positively from Taiwan Semiconductor Manufacturing's earnings scorecard was that the company achieved a gross margin of 53.2%... which came in above TSMC's guidance for Q2'24. TSMC's results were driven by HPC, the company's high-performance computing segment, which is not only seeing the strongest growth (+28% Y/Y), but which contributes also the majority of revenues for TSMC. In the second-quarter, HPC represented a revenue share of 52% (+6 PP Q/Q), by far the highest. The second-largest segment were smartphones with a 33% share, but smartphones did disappoint with a negative 1% growth rate in Q2'24. HPC benefits from the ramp in spending on Data Center infrastructure, which is the single biggest driver of TSMC's business right now. The most important take-away from TSMC's earnings release, in my opinion, was the outlook for Q3'24 as it gives us some insight into how the chip manufacturer sees its demand situation as well as margin trajectory. TSMC expects to generate between $22.4B and $23.2B in revenues in Q3'24, implying a year-over-year growth rate, at the mid-point, of 31.9%, so TSMC is not expecting to see any kind of significant top line growth deceleration in the next quarter... which bodes well for multiplier expansion. Additionally, TSMC's guidance for Q3'24 implies a gross profit margin between 53.5% and 55.5%. In other words, TSMC expects to continue to benefit from red-hot demand for semiconductors in Q3'24, resulting in a 1.3 PP increase in its gross margin Q/Q, at the mid-point. In June I said that TSMC represented a strong deal due to its unique position in the semiconductor supply chain and accelerating demand for AI chips. The same argument, broadly speaking, also applied to chip equipment manufacturer ASML (ASML) whose shares were also brutalized this week. The chip sell-off that we have seen in the last couple of days, in my opinion, is a solid engagement opportunity since nothing fundamentally has changed about the supply-demand situation in the semiconductor market (suppliers can't deliver product fast enough). TSMC's Q2'24 earnings scorecard further showed that the chipmaker benefits from sizzling demand for its chips, a view that has been confirmed by the company's outlook for Q3 as well. TSMC is currently trading at a P/E ratio of 20.8X, which has contracted from 22.6X in June. Nvidia, AMD and Broadcom have also seen their multipliers contracts, in-line with TSMC, due to comments about Taiwan's defense made by the former president. TSMC is also by far the lowest valued chip stock in the industry group -- consisting of Nvidia, AMD and AVGO. In my last work on TSMC I said that I see a fair value P/E of at least 26X for the semiconductor company's shares given the strength of demand for semiconductors, the company's robust free cash flow (margins) and positive gross margin momentum. In my opinion, after TSMC's Q2'24 earnings, the value proposition has gotten even better as it reduced uncertainty about the company's top line and gross margin growth. A 26.0X P/E ratio implies a fair value of $215 which reflects 25% upside revaluation potential. This is a dynamic number, and it may increase/decrease in-line with TSMC's revenue and gross margin momentum. There is clearly a risk about a potential invasion of Taiwan by China. Semiconductor manufacturing capacity is concentrated in Taiwan, although the U.S. is making efforts to reduce the dependency of its supply chain on Taiwan by incentivizing investments in domestic chip production through the Chip and Science Act... which earmarks $39B for investments in semiconductor production on U.S. soil. Besides the risk of an invasion, which would throw the global semiconductor supply chain into turmoil, the biggest operational risk is likely a slowdown in spending on the company's HPC products, which represent more than half of the company's revenue. There was no rational reason for investors in either Nvidia, AMD, Broadcom or TSMC to sell their shares in the last several days and investors likely overreacted to comments made by the former president. Unfortunately, the ensuing sell-off in the chip sector overshadowed TSMC's earnings release for the second-quarter... which was as solid as it could be. TSMC is seeing sustained revenue momentum and expanding gross margins, and the outlook for Q3'24 is favorable. With TSMC's shares selling undeservedly at a lower price-to-earnings ratio, I believe investors should consider buying the fear in the chip market!

TSMC Profit Soars. Is Now a Great Time to Buy the Stock?

Shares of Taiwan Semiconductor Manufacturing (NYSE: TSM), or TSMC for short, didn't accelerate higher Thursday despite the semiconductor contract manufacturer reporting strong second-quarter results and lifting its guidance. Reports of tougher export restrictions on semiconductors coming from the U.S. government and comments from presidential candidate Donald Trump weighed on the stock. Let's take a closer look at TSMC's most recent results and whether now is a good time to buy the stock following its recent sell-off. Strong growth and improved outlook For its second quarter, TSMC saw its revenue soar nearly 33% year over year to $20.8 billion, while its earnings per American depositary receipt (ADR) came in at $1.48, up from $1.14 a year ago. High-performance computing, which includes chips for artificial intelligence (AI), represented 52% of its revenue in the quarter and was up 28% quarter over quarter. Smartphone revenue accounted for a third of its sales and declined by 1% sequentially. Customers continued to migrate to smaller nodes, with 5-nanometer processing technology accounting for 35% of its revenue, while 7nm processing technology was 17% and 3nm 15%. The company projected third-quarter revenue to come in between $22.4 billion to $23.2 billion, representing 32% year-over-year growth and 9.5% growth sequentially. For the full year, it increased its guidance to growth slightly above the mid-20% mark compared to a prior outlook of low- to mid-20% revenue growth. TSMC also raised the low end of its full-year capital expenditure budget for the year, now expecting to spend between $30 billion and $32 billion, as it looks to increase capacity to meet demand. This capex spending should help power growth in future years. Given its ongoing investment, TSMC said that both pricing and cost will play an important role in getting proper value for its investments and that its pricing will be strategic. The company added that it is currently in talks with its customers about its new 2nm technology and that it expects to ramp up more quickly than its 3nm technology did. It also noted that it does not expect the market to reach a balance for its AI accelerator and CoWoS advanced packaging capacity until sometime in 2025 or 2026. Overall, this was a very strong quarter for TSMC, as revenue and profits soared and the company raised its full-year revenue guidance. However, the stock nonetheless was unable to get a lift as political commentary in the U.S. continued to weigh on the stock. When asked on itsearnings callabout Trump's comments about Taiwan needing to pay for its military and that it has taken 100% of the chip business from the U.S., TSMC management indicated it had no plans to change its strategy as it continues to build new capacity in various geographies including Arizona, Japan, and Europe. Given Taiwan's crucial role in the global semiconductor industry, though, in the event of any attack, it would appear to be in the best interests of the U.S. and its allies to protect the island to avert a catastrophe in the important semiconductor sector. As for the potential of tighter Chinese restrictions, advanced chips are already restricted and China represents only about 16% of its revenue. I think the AI chip wave potential outweighs the risk in this area. After the sell-off, meanwhile, TSMC's stock now trades at about a forward price-to-earnings (P/E) ratio of 26.6 times based on 2024 analyst estimates and under 21 times based on 2025 estimates. TSM PE Ratio (Forward) data by YCharts Given the opportunity in front of the company as the largest contract semiconductor manufacturer with key clients such as Apple and Nvidia, TSMC looks poised to ride the wave of increasing chip demand for AI applications, as well as any hardware upgrade cycle that may accompany the AI wave. Meanwhile, as more companies look to push into the AI chip space and TSMC shrinks node sizes, the company looks set to see solid pricing given the value it is giving to its customers. As such, I would be a buyer of the stock on this recent dip. The company is performing well, its outlook is bright, and the geopolitical fears look overblown. Should you invest $1,000 in Taiwan Semiconductor Manufacturing right now? Before you buy stock in Taiwan Semiconductor Manufacturing, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now... and Taiwan Semiconductor Manufacturing wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $741,989!* Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*. Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

TSMC Boosts Revenue Expectations as US Policy Concerns Weigh on Chipmakers

Industry-leading chipmaker Taiwan Semiconductor Manufacturing Company (TSMC) (NYSE:TSM,TPE:2330) released its Q2 results, reporting a 36.3 percent net income jump year-on-year. The company, whose clientele includes market behemoths Apple (NASDAQ:AAPL) and NVIDIA (NASDAQ:NVDA), continues to benefit from surging demand for artificial intelligence (AI) chips. It reported consolidated revenue of 673.51 billion New Taiwan dollars (approximately US$20.82 billion), reflecting a 40.1 percent year-on-year increase and a rise of 13.6 percent from the previous quarter. TSMC's net income rose by 9.9 percent from the first quarter, hitting 247.85 billion New Taiwan dollars. "Our business in the second quarter was supported by strong demand for our industry-leading 3nm and 5nm technologies, partially offset by continued smartphone seasonality," said Senior Vice President and CFO Wendell Huang. Huang added that moving into the third quarter, the company aims to leverage growing demand for AI-related services, including smartphones, high-performance computing and generative AI. To meet this demand, TSMC has launched new factories overseas, including three planned in the US and one in Japan that opened this year. During the second quarter, the company briefly broke the US$1 trillion market capitalization barrier, putting it ahead of Elon Musk's Tesla (NASDAQ:TSLA) as the seventh most valuable technology firm. Looking forward to Q3, TSMC expects revenue of US$22.4 billion to US$23.2 billion. Trump comments on Taiwan hurt chipmakers Shares of TSMC took a hit on Wednesday (July 17) after former US President Donald Trump suggested that Taiwan "should pay (the US) for defense" since it "does not give (the US) anything." After closing on Tuesday (July 16) at US$186.14, TSMC fell as low as US$171.16 on Wednesday. It sank even further on Thursday (July 18), reaching US$166.14 before finishing the day at US$171.81. Other major semiconductor companies also saw significant share price drops. Declines were further exacerbated by reports that the Biden administration is mulling strict curbs on firms allowing China access to advanced chip technology. Taiwan produces more than 90 percent of the world's most advanced chips, primarily through TSMC, making it a critical player in the global semiconductor supply chain. Addressing concerns, TSMC Chairman and CEO C.C. Wei told reporters on Thursday, "So far we did not change any of our original plans of expansion of our overseas fabs. We continue to expand in Arizona, in Kumamoto, and maybe in future in Europe. No change in our strategy. We continue in our current practice." Don't forget to follow us @INN_Technology for real-time updates! Securities Disclosure: I, Giann Liguid, hold no direct investment interest in any company mentioned in this article. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Taiwan Semiconductor Sees Boost from 3nm and 5nm Nodes, Analyst Highlights Q3 Outlook - Taiwan Semiconductor (NYSE:TSM)

TSM reported Q2 revenue of $20.82 billion, beating estimates, but shares fell 3.22%. Needham analyst Charles Shi reiterated a Buy rating on Taiwan Semiconductor Manufacturing Co TSM with a price target of $210. Shi said Taiwan Semiconductor reported fiscal 2024 second-quarter results, with revenue of $20.82 billion and earnings per ADS of $1.48, beating consensus estimates on both the top and bottom lines. Taiwan Semiconductor's performance can be attributed to strong demand for both the 3nm and 5nm nodes, which contributed 15% and 35% of total wafer revenue for the quarter, respectively, as per the analyst. Also Read: AI Chip Stocks Nvidia, AMD, Taiwan Semi Saw A Selloff This Week - What's Going On? The financial result was partially offset by seasonal weakness in smartphone sales, which decreased 1% sequentially, he noted. The quarter's gross margin of 53.2% was slightly below consensus due to margin dilution from the N3 ramp. Shi highlighted Taiwan Semiconductor's fiscal 2024 third-quarter guidance, which included midpoint revenue of $22.80 billion, gross margin of 54.5%, and operating margin of 43.5%, all above consensus estimates. The analyst said the upbeat guidance is mainly due to the continued rise in AI-related demand and seasonal smartphone demand for both 3nm and 5nm. Additionally, Taiwan Semiconductor raised its fiscal 2024 revenue guidance from "low- to mid-20s %" to "slightly above mid-20s %", which is mainly within market expectations, Shi noted. Shi now expects third-quarter revenue of $22.80 billion (prior $23.5 billion) and earnings per ADS of $1.77 (prior $1.78). The analyst foresees fiscal 2024 revenue of $87.89 billion (prior $88.13 billion) and earnings per ADS of $6.62 (prior $6.53). He anticipates fiscal 2025 revenue of $110.00 billion and earnings per ADS of $8.45 (prior $8.44). Price Action: TSM shares traded lower by 3.50% at $165.82 at the last check on Friday. Photo by Jack Hong via Shutterstock Market News and Data brought to you by Benzinga APIs