Taiwan Semiconductor Manufacturing (NYSE: $TSM) is the world’s largest contract chipmaker with clients globally. The company reported its highly anticipated first-quarter 2024 earnings on April 18, 2024.
As the primary supplier of semiconductors to tech giants like Apple, Nvidia and Qualcomm, TSMC’s results are closely watched as a barometer for the broader semiconductor industry.
TSMC has established itself as a dominant force in the global chip manufacturing landscape, leveraging its cutting-edge technology and vast production capacity to serve diverse customers across the electronics ecosystem. The company’s advanced 7nm and 3nm process nodes have been instrumental in powering the latest generation of smartphones, high-performance computing (HPC) solutions and the burgeoning AI revolution.
TSMC Q1 2024 Results Beat Expectations
In its Q1 results, TSMC reported revenue of NT$592.64 billion or $18.87 billion compared to the expected NT$582.94 billion, a 16.5% increase from last year. Net income rose 8.9% to NT$225.49 billion, beating expectations of NT$213.59 billion. The results were also above its revenue forecasts of between $18 billion and $18.8 billion.
On the earnings front, TSMC delivered a diluted EPS of NT$8.70 or $1.38 per ADR unit, beating forecasts of $1.29 per share. In the past four quarters, TSMC has beaten earnings forecasts 75% of the time.
The market anticipates that TSMC’s earnings report will be a pivotal event, as it could provide insights into the growth trajectory of the broader technology sector and the ongoing AI trend. The consensus expectation is that TSMC will report earnings growth, driven primarily by the surge in demand for AI-powered chips and orders from companies like Nvidia.
Key Factors Driving TSMC’s Q1 2024 Performance
Several key factors are behind the latest earnings beat. At the forefront of TSMC’s success is its relentless focus on technological advancements. The company’s continuous development of leading-edge and specialty technologies, such as the 7nm and 3nm process nodes, as well as the ramp-up of the 5nm technology, will be crucial drivers. This technological prowess will allow TSMC to strengthen its wafer revenues and solidify its position as a preferred manufacturer of the latest semiconductor solutions.
Alongside its technological edge, TSMC has also benefited from its diversified customer base and expansion into high-growth market segments. The company’s efforts to diversify beyond its traditional smartphone customer base and tap into new applications, including high-performance computing (HPC) and emerging technologies, will pay significant dividends. This diversification strategy will likely fuel TSMC’s performance during the quarter.
Moreover, the surging demand for AI-powered chips is another important factor for the company. TSMC’s cutting-edge manufacturing capabilities will make it a preferred partner for AI chip designers, as the rise of AI across various industries, including cloud computing, edge devices and autonomous vehicles, will create a substantial opportunity for the company to capitalize on.
However, the typical smartphone seasonality, which often impacts demand during the first quarter and the challenging overall economic environment, caused some challenges for the company in its first-quarter results.
TSMC Forecast
For the second quarter, TSMC expects revenue of $19.6 billion to $20.4 billion based on the current exchange rate of $1 to 32.3 NT$. It expects a gross profit margin of 51%-53% and an operating profit margin of 40%-42%.
Stock Performance
TSMC’s stock has been on a remarkable run, doubling since the October 2022 market bottom. The company’s market capitalization has increased massively by $340 billion during this period, reflecting the market’s confidence in TSMC’s long-term growth prospects.
The stock’s performance has mirrored the broader rebound in the technology sector. However, the pace of the recovery has been more gradual compared to the steep rise observed during the post-COVID-19 euphoria in 2021. The stock closed on April 17, 2024, at $139.03 per share, down by 0.55%, with the 50-day simple moving average (SMA) providing a significant support level at $135 per share.
The main resistance level for TSM is $160 per share, representing the record highs reached in March. The options market is currently implying a volatility of around 6% in the stock price following the earnings release, suggesting that investors are anticipating a relatively muted reaction to the Q1 results.
On Thursday morning, TSM shares were down 5.38% to $131.55 as of 09:34 AM in New York.
Analysts forecasts
TSMC has an overall strong buy rating, according to eight Wall Street analysts. They forecast a broad range for the stock, with a high of $188 and a low of $125. The average forecast of $154.14 is a 16.89% upside based on the most recent price.
Thoughts Going Forward
In general, the performance of TSMC on Thursday was in line with that of other chip stocks. The stocks saw a drop starting on Wednesday as ASML, which makes semiconductor manufacturing equipment, reported a drop in earnings beyond what investors had anticipated.
Investors and industry analysts are keenly watching for indicators that could shape the company’s future trajectory. The market is focused on TSMC’s ability to maintain its momentum in the AI chip market, which has emerged as a significant growth driver. Investors will seek insights into the long-term potential of the AI industry and how TSMC plans to capitalize on this trend.
However, the impact of the slowing smartphone market, particularly the weaker iPhone sales, is another crucial metric as the company navigates diversifying its customer base. TSMC’s capital expenditure plans are also being scrutinized, as its willingness to invest in cutting-edge production facilities and technology development will be crucial to sustaining its dominance in the semiconductor manufacturing landscape.
However, the rising AI demand positions TSMC for significant future growth, as seen in its Q2 forecast. Consequently, the strong buy rating accurately represents the stock’s future performance.
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