Should You Invest in Taiwan Semiconductor Following a 13% Decline? Should You Invest in Taiwan Semiconductor Following a 13% Decline?

Written By Michael Gary Scott

Taiwan Semiconductor Manufacturing Company (TSM) stands as the behemoth of semiconductor foundries, boasting a colossal market cap of $893.8 billion. Based in Hsinchu, Taiwan, TSM’s domain encompasses the design, production, and manufacture of dedicated and integrated circuits, catering to a varied clientele including tech giants like Nvidia (NVDA), Apple (AAPL), and Advanced Micro Devices (AMD).

Positioned at the core of the global semiconductor supply chain, TSM has undergone substantial growth this year, achieving a remarkable 62.7% year-to-date surge and reaching an unparalleled pinnacle of $193.47 in July. However, in a stark turn of events, Taiwan Semiconductor’s shares have plummeted by over 13% amidst a general downturn in the technology sector.

Taiwan Semiconductor Stock Chart
Source: www.barchart.com

TSM Delivers Impressive Quarterly Results

In a display of sheer dominance, the Taiwan-based foundry exceeded expectations with its Q2 results announced in July. Revenue surged by 32% year-over-year, breaching the $20 billion threshold to settle at $20.82 billion, outshining analysts’ projections of $20.09 billion. Profits stood at $1.48 per share, surpassing Wall Street’s estimate of $1.42 per share, primarily fueled by the surging demand for artificial intelligence (AI) hardware and services.

Moreover, gross margin for the quarter saw a substantial leap from 42.5% to 53.2%, while net margin stood at an impressive 36.8%. Taiwan Semiconductor reported a 15% increase in 3nm revenue, 35% in 5nm, 17% in 7nm, with advanced technologies representing 67% of total wafer revenue.

Looking ahead to Q3, the management has forecasted revenue between $22.4 billion and $23.2 billion, marking a robust 32% year-over-year rise at the midpoint and a substantial 9.5% increase from Q2. Gross profit for the upcoming quarter is anticipated to fall within the range of 53.5% to 55.5%, with an operating profit expected between 42.5% and 44.5%. Recent reports also indicated a 45% surge in July sales for the company.

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Furthermore, Intel’s (INTC) recent disastrous earnings report could potentially bode well for TSM, suggesting that the emergent foundry sector does not pose an immediate threat to the industry giant.

Analysts Bullish on TSM Stock

Analysts have expressed overwhelming optimism about TSM, exemplified by a consensus “Strong Buy” rating and a mean price target of $204.71, representing a promising 21.5% upside from the current market value.

Among the 10 analysts covering TSM, 8 have rated it as a “Strong Buy,” while 1 suggests a “Moderate Buy,” and another recommends a “Hold.”

Taiwan Semiconductor Stock Performance
Source: www.barchart.com

With a price/earnings-to-growth (PEG) ratio of 0.98 and a forward dividend yield of 1.27%, TSM emerges as a compelling semiconductor stock for investors seeking an opportune entry point amidst the recent dip.