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Why Taiwan Semiconductor (TSM) Stock Is a Must-Buy on the Dip
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Taiwan Semiconductor Manufacturing Co. Ltd. (TSM - Free Report) has become a new poster boy on the global artificial intelligence (AI) frenzy. The company is the largest manufacturer of AI-based chipsets for the world’s best AI chipset developers.
TSM provides a range of wafer fabrication processes, including processes to manufacture complementary metal- oxide-semiconductor logic, mixed-signal, radio frequency, embedded memory, bipolar CMOS mixed-signal, and others.
Taiwan Semiconductor reported excellent results for second-quarter 2024 beating both top and bottom lines estimates, supported by a 3-nanometer chipset boom. TSM posted a strong revenue ramp-up across various segments. High-Performance Computing surged by 28%, Digital Consumer Electronics increased by 20%, Internet of Things (IoT) rose 6% and the Automotive sector rose 5%. Only Smartphone-related sales dropped a mere 1%.
Robust Clientele
TSM is the largest manufacturer of NVIDIA Corp.’s (NVDA - Free Report) chipsets. NVIDIA is globally the largest developers of generative AI-based chips. TSM also caters to Advanced Micro Devices Inc. (AMD - Free Report) , Apple Inc. (AAPL - Free Report) , Broadcom Inc. (AVGO - Free Report) and Intel Corp. (INTC - Free Report) to name a few.
Taiwan Semiconductor is experiencing solid demand for its advanced technologies, such as 3-nanometer (nm) and 5nm. The growing adoption of its multi-project wafer processing service, which allows customers to reduce mask costs, is driving its customer momentum.
The company’s growing efforts to ramp up the production of 3nm and development of 2nm is a plus. Also, strength across its 7nm, 16nm and 28nm technologies are contributing well to its top-line growth. In second-quarter 2024, 3nm, 5nm, 7nm, 16nm and 28nm accounted for 15%, 35%, 17%, 9% and 8% of the company’s wafer revenues, respectively.
Solid Outlook
For third-quarter 2024, Taiwan Semiconductor expects the solid adoption of AI and smartphones to boost the demand for its leading-edge process technologies. It projects revenues between $22.4 billion and $23.2 billion. The company also expects more than 20% growth in 2024 revenues due to rising demand for high-end chips used in AI applications.
The Zacks Consensus Estimate for third-quarter and 2024 revenues is pegged at $22.72 billion and $85.26 billion, indicating year-over-year growth of 31.5% and 23%, respectively.
The consensus mark for third-quarter 2024 earnings is pegged at $1.69 per share, suggesting year-over-year growth of 31%. The estimate has been revised upward by 8.3% in the last 30 days. The consensus mark for 2024 earnings is pegged at $6.37 per share, indicating year-over-year growth of 18.9%. The estimate has been revised upward by 0.9% in the last seven days.
Image Source: Zacks Investment Research
Reasonable Valuation
Taiwan Semiconductor belongs to the Zacks Defined Semiconductor - Circuit Foundry Industry, which currently stands at the top 1% of the Zacks Industry Rank. Since it is ranked in the top half of Zacks Ranked Industries, we expect the Circuit Foundry industry to outperform the market over the next 3 to 6 months.
TSM is currently trading at a reasonable valuation compared to its peers. The company has a forward P/E of 25.16x, Price/Sales (P/S) of 10.85x and Price/Book (P/B) of 7.13x. All three parameters are in line with the current industry average.
TSM’s dominant position in the circuit foundry industry has enabled it to sustain margins. Despite facing inflationary forces, including rising electricity costs, TSM’s gross margin, operating margin, and net margin in the last reported quarter were 53.2%, 42.5%, and 36.8%, respectively.
Image Source: Zacks Investment Research
Strong Upside Left
Taiwan Semiconductor recorded its all-time high price at $193.47 on Jul 11. After that, the stock price tumbled 16.3% due to an AI-related meltdown. However, the recent dip in stock price is a golden opportunity to enter this stock to enrich your portfolio over the long term.
The stock price has soared nearly 57% year to date. Despite this, the average price target of brokerage firms represents an increase of 27.7% from the last closing price of $161.94. The brokerage target price is currently in the range of $170-$205. Finally, Taiwan Semiconductor currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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Why Taiwan Semiconductor (TSM) Stock Is a Must-Buy on the Dip
Taiwan Semiconductor Manufacturing Co. Ltd. (TSM - Free Report) has become a new poster boy on the global artificial intelligence (AI) frenzy. The company is the largest manufacturer of AI-based chipsets for the world’s best AI chipset developers.
TSM provides a range of wafer fabrication processes, including processes to manufacture complementary metal- oxide-semiconductor logic, mixed-signal, radio frequency, embedded memory, bipolar CMOS mixed-signal, and others.
Taiwan Semiconductor reported excellent results for second-quarter 2024 beating both top and bottom lines estimates, supported by a 3-nanometer chipset boom. TSM posted a strong revenue ramp-up across various segments. High-Performance Computing surged by 28%, Digital Consumer Electronics increased by 20%, Internet of Things (IoT) rose 6% and the Automotive sector rose 5%. Only Smartphone-related sales dropped a mere 1%.
Robust Clientele
TSM is the largest manufacturer of NVIDIA Corp.’s (NVDA - Free Report) chipsets. NVIDIA is globally the largest developers of generative AI-based chips. TSM also caters to Advanced Micro Devices Inc. (AMD - Free Report) , Apple Inc. (AAPL - Free Report) , Broadcom Inc. (AVGO - Free Report) and Intel Corp. (INTC - Free Report) to name a few.
Taiwan Semiconductor is experiencing solid demand for its advanced technologies, such as 3-nanometer (nm) and 5nm. The growing adoption of its multi-project wafer processing service, which allows customers to reduce mask costs, is driving its customer momentum.
The company’s growing efforts to ramp up the production of 3nm and development of 2nm is a plus. Also, strength across its 7nm, 16nm and 28nm technologies are contributing well to its top-line growth. In second-quarter 2024, 3nm, 5nm, 7nm, 16nm and 28nm accounted for 15%, 35%, 17%, 9% and 8% of the company’s wafer revenues, respectively.
Solid Outlook
For third-quarter 2024, Taiwan Semiconductor expects the solid adoption of AI and smartphones to boost the demand for its leading-edge process technologies. It projects revenues between $22.4 billion and $23.2 billion. The company also expects more than 20% growth in 2024 revenues due to rising demand for high-end chips used in AI applications.
The Zacks Consensus Estimate for third-quarter and 2024 revenues is pegged at $22.72 billion and $85.26 billion, indicating year-over-year growth of 31.5% and 23%, respectively.
The consensus mark for third-quarter 2024 earnings is pegged at $1.69 per share, suggesting year-over-year growth of 31%. The estimate has been revised upward by 8.3% in the last 30 days. The consensus mark for 2024 earnings is pegged at $6.37 per share, indicating year-over-year growth of 18.9%. The estimate has been revised upward by 0.9% in the last seven days.
Image Source: Zacks Investment Research
Reasonable Valuation
Taiwan Semiconductor belongs to the Zacks Defined Semiconductor - Circuit Foundry Industry, which currently stands at the top 1% of the Zacks Industry Rank. Since it is ranked in the top half of Zacks Ranked Industries, we expect the Circuit Foundry industry to outperform the market over the next 3 to 6 months.
TSM is currently trading at a reasonable valuation compared to its peers. The company has a forward P/E of 25.16x, Price/Sales (P/S) of 10.85x and Price/Book (P/B) of 7.13x. All three parameters are in line with the current industry average.
TSM’s dominant position in the circuit foundry industry has enabled it to sustain margins. Despite facing inflationary forces, including rising electricity costs, TSM’s gross margin, operating margin, and net margin in the last reported quarter were 53.2%, 42.5%, and 36.8%, respectively.
Image Source: Zacks Investment Research
Strong Upside Left
Taiwan Semiconductor recorded its all-time high price at $193.47 on Jul 11. After that, the stock price tumbled 16.3% due to an AI-related meltdown. However, the recent dip in stock price is a golden opportunity to enter this stock to enrich your portfolio over the long term.
The stock price has soared nearly 57% year to date. Despite this, the average price target of brokerage firms represents an increase of 27.7% from the last closing price of $161.94. The brokerage target price is currently in the range of $170-$205. Finally, Taiwan Semiconductor currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Image Source: Zacks Investment Research