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

Key Morningstar Metrics for Taiwan Semiconductor Manufacturing

• Fair Value Estimate: $146.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

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.