Case Study: What Credible analysts are saying on Taiwan Semiconductor (TSM) stock
Key Points
Performance
Taiwan Semiconductor (TSM) rose by 7.7% this week, pushing their year-to-date performance up to 17.5%. This compares favorably to the S&P 500, which is up by approximately 4.6% during 2023 thus far.
Event & Impact
Taiwan Semiconductor announced its Q4 earnings results this week, beating Wall Street’s estimates on the bottom line.
Noteworthy News:
Taiwan Semiconductor continues to outperform its peers in the semiconductor industry and the company’s recent announcement for plans to produce 3nm chips points towards continued technological superiority.
Nobias Insights
67% of recent articles published by credible authors focused on TSM shares offer a “Bullish” bias. Three out of the four credible Wall Street analysts who cover Taiwan Semiconductor believe shares are likely to rise in value. The average price target applied to TSM by credible analysts is $88.50, which implies a small upside potential of 3.0% relative to the current share price of $86.80.
Bullish Take Patrick Seitz, a Nobias 4-star rated author, said: “TSMC is leading the race to make chips with ever smaller circuits.”
Bearish Take Growth at a Good Price, a Nobias 4-star rated author, said, “If you choose to invest in Taiwan Semiconductor Manufacturing, there is one risk you'll want to watch out for: Geopolitical risk.”
TSM Jan 2023
One of the largest semiconductor companies in the world, Taiwan Semiconductor (TSM), reported earnings this week. Taiwan Semiconductor’s Q4 results have sparked a significant rally, with shares up by 17.50% on a year-to-date basis. This makes TSM one of the best performing stocks in the market throughout 2023 thus far and according to the credible authors and Wall Street analysts that the Nobias algorithm tracks, there is upside ahead.
Bullish Nobias Credible Analysts Opinions:
Patrick Seitz,a Nobias 4-star rated author, recently touched upon Taiwan Semiconductor’s innovative technology in an article published at Investors.com. He stated, “TSMC is leading the race to make chips with ever smaller circuits.”
Currently, Seitz notes, the company’s “state-of-the-art chips use 5-nanometer process technology”; however, Taiwan Semiconductor recently announced a ceremony “to celebrate the start of mass production using its 3-nanometer process technology.”
Regarding the importance of this advancement, Seitz wrote, “Circuit widths on chips are measured in nanometers, which are one-billionth of a meter. Smaller circuits translate to faster and more power-efficient semiconductors.” And, he states, there is significant demand for chips with the smaller nodes. Seitz said, “TSMC's customers include Apple (AAPL), Advanced Micro Devices (AMD), Nvidia (NVDA), and more.”
Shanthi Rexaline, a Nobias 4-star rated author, covered Taiwan Semiconductor’s recent earnings report in an article that she published at Benzinga. She said, “The Hsinchu, Taiwan-based company reported fourth-quarter earnings that beat expectations despite a revenue miss.”
During the fourth quarter, Taiwan Semiconductor generated $19.93 billion in sales, which missed Wall Street estimates by $990 million. However, despite the miss, this sales figure still represented 26.6% year-over-year growth. During Q4, TSMC’s GAAP earnings-per-share totaled $1.82, beating analyst estimates by $0.05/share.
During the company’s Q4 report, TSMC reported, “Gross margin for the quarter was 62.2%, operating margin was 52.0%, and net profit margin was 47.3%.The company also said, “In the fourth quarter, shipments of 5-nanometer accounted for 32% of total wafer revenue; 7- nanometer accounted for 22%. Advanced technologies, defined as 7-nanometer and more advanced technologies, accounted for 54% of total wafer revenue.”
Rexaline continued, “More importantly, the company guided to below-consensus first-quarter revenue, citing continued end-market weakness and inventory correction.” She went on to quote a Wall Street analyst, stating, “Needham analyst Charles Shi noted that TSMC expects low-single-digit earnings growth for 2023, implying a revenue bottom in the second quarter.”
Rexaline wrote, “The company also reduced its 2023 Capex guidance to $32 billion-$36 billion and called for a narrowing of margins amid a rise in R&D expenses, the analyst said.” Lower capex implies stronger cash flows, even in the face of disappointing sales guidance.
Bearish Nobias Credible Analysts Opinions:
Nobias 4-star rated author, Growth at a Good Price, also covered TSMC’s Q4 results in an article that they published at Seeking Alpha this week. Regarding the quarter, Growth at a Good Price said, “It was a very strong release from a company that fell 40% in the 2022 tech crash, thanks mainly to the weakness of other semi names in the same period.” They too covered TSMC’s top and bottom-line results, before transitioning to the company’s cash flows. The author wrote, “Free cash flow was another standout metric in the quarter. At $4.93 billion, it improved by $110 million from the prior quarter. Total free cash flow for the year was $17.33 billion, a significant improvement over the previous year.”
Furthermore, Growth at a Good Price mentioned Taiwan Semiconductor’s strong relative performance compared to its industry peers. They said, “It's impressive that TSMC is still guiding for modest full year growth in this environment, as many similar companies are already seeing revenue decline in 2022.” The author continued, “In its most recent quarter, Micron's (MU) revenue declined 47% year over year. NVIDIA (NVDA), for its part, reported a 17% decline.”
“To know whether TSM's good results can continue,” Growth at a Good Price mentioned, “we need to understand why it is performing so much better than its competitors.” “First,” they continued, “its dominant market position gives it pricing power.” “Second,” the author said, “it is not a commodity vendor.” And lastly, Growth at a Good Price stated that TSMC “doesn't specialize in just one market segment.”
Overall, they were bullish on the stock; however, they did put a spotlight on a major risk that investors need to be aware of. Growth at a Good price said, “If you choose to invest in Taiwan Semiconductor Manufacturing, there is one risk you'll want to watch out for: Geopolitical risk.” Along these lines they continued, “Many people believe that China will someday invade Taiwan.”
“China's President Xi Jinping has indicated that he could use force as a "last resort" should foreign nations interfere with his planned unification with Taiwan. He has never said what his "red lines" are for determining that an invasion is necessary, which makes the China/Taiwan situation fairly ambiguous,” said the author. Regarding the potential fallout from a Chinese invasion, Growth at a Good Price said, “the effects of an invasion on Taiwan Semiconductor are not known.”
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
But, they did conclude, “Chinese companies would almost certainly be sanctioned, but Taiwan is aligned with the West, so as long as China doesn't directly attack semiconductor facilities then a war would not be fatal to TSM as a business. The stock market volatility in such a scenario would likely be extreme, though, so know your risk tolerance before buying Taiwan Semiconductor stock.” Overall, the author says that for investors who can stomach the geopolitical situation, “Taiwan semiconductor stock appears to be a good bet.”
Overall bias of Nobias Credible Analysts and Bloggers:
This bullish sentiment is shared by the majority of credible authors and Wall Street analysts who cover TSMC. 65% of recent articles published by credible Nobias authors have expressed a “Bullish” bias towards Taiwan Semiconductor shares.
Furthermore, 3 out of the 4 credible analysts who have offered an opinion on TSMC have an average price target of $88.50 attached to shares. Taiwan Semiconductor has rallied 17.5% since the start of 2023 alone; however, even after this rally, that average price target implies upside potential of 3% relative to TSMC’s current share price of $86.80.
Disclosure: Nicholas Ward has no TSM position. Nicholas Ward wrote this article for Nobias at their request with the intention of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.