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TSMC Earnings: Shares Cheap as Cautious Capital Spending and Industry Outlook Dent Sentiment

TSMC’s stock remains attractive, as AI-related demand continues to pleasantly surprise us.

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Taiwan Semiconductor Manufacturing Co Ltd ADR

Key Morningstar Metrics for Taiwan Semiconductor Manufacturing

What We Thought of Taiwan Semiconductor Manufacturing’s Earnings

We maintain our fair value estimate of $146 per share for Taiwan Semiconductor Manufacturing TSM, as there is no change in the company’s long-term thesis. TSMC’s disciplined approach to capital spending in 2024—and possibly in the next few years—reduces risks of oversupply and allows for flexibility in cutting-edge research to maintain its leadership. TSMC’s shares remain attractive, as artificial-intelligence-related demand continues to pleasantly surprise us, and there is limited downside to sentiment for the automotive and industrial markets.

TSMC anticipates second-quarter revenue to grow 9% sequentially to TWD 646 billion at the midpoint (in USD terms, 6% to $20 billion). This gives us more confidence that the firm can achieve our full-year 2024 revenue estimate of TWD 2.64 trillion. Gross margin guidance is 107 basis points lower sequentially at 52% at the midpoint, 50 basis points of which is due to scrapping raw materials that were damaged by an earthquake on April 3. The remainder stems from 25% higher electricity costs in Taiwan. However, we have not changed our forecasts, as we believe higher utilization and 3 nm contribution in the second half will mostly mitigate these headwinds.

While we did not anticipate that management would change its full-year revenue guidance from January, we are mildly disappointed about the unchanged capital expenditure budget and sector commentary. Management lowered its 2024 foundry market forecast to growth in the mid-to-high teens from 20%, citing weaker-than-anticipated recovery, especially in automotives, where it expects sales to fall year on year.

TSM Stock vs. Morningstar Fair Value Estimate

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Phelix Lee

Equity Analyst
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Phelix Lee is an equity analyst for Morningstar Asia Limited, a wholly owned subsidiary of Morningstar, Inc. He covers Asia tech stocks, with a focus on Greater China.

Before joining Morningstar in 2019, Lee spent five years at a Hong Kong-based brokerage firm as an equity analyst covering small/mid-cap names in tech hardware.

Lee holds a Bachelor of Business Administration (Honours) in financial services from the Hong Kong Polytechnic University. He also holds the Chartered Financial Analyst® designation.

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